A 90-Day Letter, officially known as a Notice of Deficiency, is a formal document issued by the Internal Revenue Service (IRS) informing a taxpayer that the agency has determined a tax deficiency. This notice is a critical step in the tax law and procedure process, representing the IRS's legal determination that additional taxes, and often penalties and interest, are owed based on discrepancies found during an examination or other review of a tax return24. It provides the taxpayer with a crucial 90-day window to either agree to the proposed adjustments, pursue an administrative appeal, or file a petition with the U.S. Tax Court to dispute the findings before the IRS can formally assess the additional tax liability23.
History and Origin
The concept of an independent body where taxpayers could challenge IRS determinations without first paying the disputed tax originated with the Revenue Act of 1924. This act established the Board of Tax Appeals (BTA), an independent agency within the Executive Branch, created to allow taxpayers to dispute tax assessments prior to payment22. Before the BTA, taxpayers typically had to pay the contested tax and then sue for a refund, which placed a significant financial burden on them21. The 90-day period for challenging a deficiency determination is directly tied to this historical framework, providing a specific window for taxpayers to seek judicial review of the IRS's findings. In 1942, the BTA was renamed the Tax Court of the United States, and later, through the Tax Reform Act of 1969, it was reconstituted as the United States Tax Court, establishing it as an Article I court with judicial power independent of the Executive and Legislative Branches20. This evolution cemented the right of taxpayers to challenge deficiency notices in a specialized court.
Key Takeaways
- A 90-Day Letter is the IRS's formal notification of a proposed tax deficiency, including additional taxes, penalties, and interest.
- Taxpayers generally have 90 days from the date of the notice to respond, with a 150-day period for those residing outside the United States19.
- The notice is a prerequisite for the IRS to assess and collect additional income, estate, or gift taxes, offering the taxpayer a chance to challenge the findings before final tax assessment18.
- Options upon receiving a 90-Day Letter include agreeing to the proposed changes, pursuing an appeal within the IRS, or filing a petition with the U.S. Tax Court17.
Interpreting the 90-Day Letter
The 90-Day Letter is a crucial communication in the tax compliance process. It clearly outlines the proposed adjustments, specifying the tax year involved and the amount of the deficiency16. The notice also details the reasons for the adjustments, such as unreported income, disallowed deductions, or miscalculated credits, and includes an explanation of any associated penalties and interest15.
Upon receiving a 90-Day Letter, a taxpayer must understand that this is not a bill to be paid immediately, but rather a formal declaration of the IRS's intent to assess additional tax. The clock for the 90-day (or 150-day) response period begins on the date the notice is mailed, not when it is received14. Missing this deadline can lead to the IRS automatically assessing the proposed deficiency, at which point the taxpayer loses the right to challenge the adjustments in the U.S. Tax Court without first paying the tax13. Therefore, timely action and understanding of the notice's contents are paramount for protecting one's financial interests and navigating potential tax collection efforts.
Hypothetical Example
Suppose Emily received a 90-Day Letter from the IRS dated June 1, 2025. The letter states that after a tax audit of her 2023 tax return, the IRS determined a deficiency of $5,000 due to the disallowance of certain business expense deductions. The letter also outlines a $1,000 penalty and $200 in accrued interest.
Emily now has until August 30, 2025 (90 days from June 1) to respond. Her options include:
- Agreeing: If Emily reviews her records and agrees with the IRS's findings, she can sign the enclosed agreement form (waiver) and return it. The IRS will then assess the $6,200 and send her a bill.
- Appealing within the IRS: If Emily believes the IRS is incorrect, she can still request a conference with the IRS Appeals Office. However, she must do so quickly, as this process also needs to be completed within the 90-day period if she wishes to preserve her right to go to Tax Court.
- Filing a petition with the U.S. Tax Court: If she wishes to formally dispute the deficiency in court without paying the tax upfront, she must file a petition with the U.S. Tax Court by August 30, 202512. If she misses this date, the IRS can proceed to assess the tax, and her only recourse would be to pay the tax and then file a refund claim in a different court.
Practical Applications
The 90-Day Letter is a critical document in the lifecycle of a taxpayer's interaction with the IRS, particularly after an examination. Its practical applications primarily revolve around tax dispute resolution and tax planning.
For individuals and businesses, receiving a 90-Day Letter signals the definitive stance of the IRS on a disputed tax matter. It forces the taxpayer to make a strategic decision: accept the proposed adjustments, continue to negotiate with the IRS's Appeals division, or escalate the dispute to the U.S. Tax Court11. This notice serves as the gateway to judicial review, allowing taxpayers to challenge the IRS's findings without prepaying the disputed tax, a unique advantage offered by the Tax Court10.
In practice, tax professionals, including tax attorneys and certified public accountants, play a vital role in helping clients respond to a 90-Day Letter. They assist in reviewing the IRS's proposed adjustments, analyzing the legal basis for the deficiency, and preparing the appropriate response, whether it's filing a petition or negotiating a settlement. The importance of understanding the 90-day deadline cannot be overstated, as failure to act within this specific timeframe can eliminate a taxpayer's opportunity to have their case heard by the U.S. Tax Court9. For example, the Internal Revenue Manual provides specific guidance to IRS personnel regarding the preparation and issuance of these notices to ensure compliance with the Internal Revenue Code8.
Limitations and Criticisms
While the 90-Day Letter is a cornerstone of taxpayer rights within the U.S. tax system, it also presents certain limitations and can be a source of significant stress. One primary criticism is the strict 90-day deadline, which can be challenging for taxpayers to meet, especially those unfamiliar with tax law or those who need time to gather extensive documentation or seek professional advice7. Unlike other notices, the U.S. Tax Court cannot extend this 90-day period for filing a petition6.
Furthermore, the issuance of a 90-Day Letter does not always follow a series of prior communications. In some instances, the IRS is authorized, but not obligated, to send interim notices before issuing a Notice of Deficiency5. This can leave some taxpayers feeling blindsided if they were not aware of an ongoing examination or the severity of the potential adjustments. For instance, the IRS may proceed with collection actions, such as imposing a tax lien or levy, if a taxpayer fails to respond to the 90-Day Letter within the specified timeframe, illustrating the significant power the IRS possesses in tax collection4.
Another limitation can arise if the statute of limitations for assessment is about to expire. In such cases, the IRS may issue a 90-Day Letter to preserve its ability to assess and collect taxes, even if the information available is preliminary3. This can put pressure on taxpayers to respond quickly with potentially incomplete information.
90-Day Letter vs. 30-Day Letter
The 90-Day Letter and the 30-Day Letter are both significant notices from the IRS, but they serve different purposes and have distinct implications for taxpayers. The key difference lies in the stage of the dispute resolution process they represent and the actions they require.
A 30-Day Letter, often issued after an IRS tax audit but before a formal Notice of Deficiency, informs the taxpayer of the audit findings and proposed adjustments. It typically includes an examination report and gives the taxpayer approximately 30 days to respond. During this 30-day period, the taxpayer has the option to agree with the findings, submit additional information, or request a conference with the IRS Appeals Office. The 30-Day Letter is essentially an invitation to resolve the dispute at an administrative level before formal legal action.
In contrast, the 90-Day Letter (Notice of Deficiency) is a more serious communication. It is generally issued if the taxpayer does not respond to the 30-Day Letter, does not reach an agreement with the IRS Appeals Office, or if the IRS determines that no administrative appeal is necessary. The 90-Day Letter signifies the IRS's final determination of a tax deficiency and grants the taxpayer the statutory right to file a petition with the U.S. Tax Court within 90 days. Unlike the 30-Day Letter, which offers an administrative path, the 90-Day Letter initiates the legal process for disputing the deficiency in a judicial forum.
FAQs
What happens if I ignore a 90-Day Letter?
If a taxpayer ignores a 90-Day Letter and does not file a petition with the U.S. Tax Court within the allotted 90 days, the IRS will proceed to formally assess the proposed tax deficiency, including any penalties and interest. At this point, the taxpayer loses the right to challenge the deficiency in Tax Court and will receive a bill for the amount due. The IRS can then begin tax collection efforts, such as liens or levies2.
Can the 90-day period be extended?
No, the 90-day period (or 150-day period for those outside the U.S.) for filing a petition with the U.S. Tax Court in response to a 90-Day Letter cannot be extended by the IRS or the Tax Court1. It is a statutory deadline that must be strictly adhered to.
Is a 90-Day Letter a tax bill?
No, a 90-Day Letter is not a tax bill. It is a formal notice of a proposed tax deficiency and the IRS's intent to assess additional taxes. A tax bill will only be sent after the 90-day period expires without a timely filed petition to the U.S. Tax Court, or if the taxpayer agrees to the proposed adjustments.