The Internal Revenue Service (IRS) sends out letters and notices to taxpayers for various reasons. AG Tax recommends taxpayers to not ignore these notices, as interest and penalties could be assessed depending on the circumstances for which the letter was sent. AG Tax professionals have prepared a brief summary on a few of the common notices the IRS utilizes.
Types of IRS Notices & Letters
Statutory Notice of Deficiency (aka 90-Day Letter):
The IRS issues a statutory notice of deficiency when it finds a deficiency in an income or estate and gift tax liability. It is a formal legal notice sent by certified or registered mail.
The taxpayer needs to respond to the notice within 90 days if s/he lives in the U.S. or 150 days if s/he lives abroad. The IRS will assess the proposed deficiency and will issue a bill to the taxpayer if s/he fails to respond to the notice or delay in filing a petition. At this point, the taxpayer may have to pay the amount assessed depending on which court is handling the case. The taxpayer then has the opportunity to contest the assessment by filing a refund claim.
Final Partnership Administrative Adjustment (FPAA):
The FPAA is a statutory notice of adjustments in a partnership proceeding that is subject to judicial review in the courts where the partnerships principle place of business is located. An FPAA letter can be easily recognized as “Notice of Final Partnership Administrative Adjustment” as the term will be mentioned in multiple places.
In this scenario, the tax matters partner has a 90 day window to respond and file a petition for readjustment in the courts; the 5% partner group may file a petition within 60 days following the 90 days period. If none of the partners take action within the time frame, the IRS will assess the adjustment and bill the taxpayer for the deficiency plus applicable interest and penalties.
Notice of Computational Adjustment:
The IRS is deemed to have sent to the partner(s)a “notice of computational adjustment” when it sends Form 4549 (Income Tax Examination Changes) showing the adjustments made to the partner’s tax return due to the change in tax liability following FPAA or any other adjustments. The notice of computational adjustment may not come via certified mail.
There is a 6-month period for the partner to challenge the IRS assessment. However, the partner must pay the full amount of tax outstanding according to the assessment before s/he does so. If the taxpayer fails to take action within the time frame, the taxpayer will be barred from filing a tax refund suit challenging the computational adjustment.
IRS Summons:
An IRS summons will arrive on a preprinted Form 2039 with the word “Summons” in large font at the top. A summons may be for books, records and other documentary data, or for testimony of the person concerned or third parties testimony.
The expected receiver needs to show up at a particular time and place, and produce the data demanded by the IRS summon. An IRS summons should be taken very seriously, as ignoring it may cause taxpayers to be subject to criminal investigation.
Final Notice before Levy:
After a tax assessment, businesses can typically expect two IRS notices demanding payment, while individuals may receive four such notices. In either case, the final demand notice is called “Final Notice — Notice of Intent to Levy”. The taxpayer should receive the Final Notice by certified mail.
The taxpayer will need to complete the required steps within 30 days to prevent the IRS from seizing the taxpayer’s property to satisfy any outstanding tax debt.
AG Tax LLP Can Help
If you have any tax-related queries, need assistance with tax planning or filing your tax returns please contact us. Our team comprises of highly experienced tax professionals with extensive knowledge of U.S. and Canadian tax laws as well as cross-border compliance.
Furthermore, as a full service accounting firm, AG Tax associates are dedicated to assist you with even your most complex tax needs.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- U.S. Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:
- 416-238-5920 (Greater Toronto Area, ON)
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Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.
