Question

IRS Practice & Procedure

What must happen before an assessment and collection of a deficiency can properly occur?

Answer 1

The term “deficiency” is defined as the excess of the correct tax over the amount shown as due on the return, whether for income, estate, or gift tax, as well as certain excise taxes on transactions involving foundations and pension plans. The amount a taxpayer shows as due on its return is not considered a deficiency, so an assessment of the amount does not require a notice of deficiency.

The following should occur before assessment and collection of a deficiency by IRS:

• Send a valid, statutory notice of deficiency and give a 90-day (or, if applicable, a 150-day) period within which to file a Petition in U.S. Tax Court for re-determination of the asserted deficiency.
• If a Petition is filed with the Tax Court, the period of limitations for making an assessment is further suspended and tolled until 60 days following the Tax Court’s decision becoming final.
• However, not all tax assessments are subject to the deficiency procedures. Deficiency procedures apply only to those assessments that fit within the relatively narrow, technical definition of a “deficiency.”