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  1. #1
    Join Date
    Apr 2018
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    3

    Default How to Respond to a Notice of Deficiency Due to Failure to File Tax Returns

    I have received a "Notice of Deficiency" from IRS, for over $46,000! I did not file my taxes for the years 2013 and 2014. Hence, IRS filed my taxes for me. They filed as "married filling SEPARATELY", and didn't claim any deductions.

    If the taxes are filed as "married filing jointly", and mortgage interest deduction is taken, I would not owe any back taxes. In fact, I would get a refund. Unfortunately, I did not file the return and am kicking myself for my laziness and procrastination.

    So, I am guessing this involves filling 2013 & 2014 returns. My taxes are quite straightforward (salaried employee, with*a house mortgage). So I don’t need help in preparing the returns since I can do so myself. But I do need help in resolving this situation with IRS and FTB. I have no clue how to go about doing that.

    The notice says that I have 60 days to dispute this in Tax court. So time is of the essence.

    How do I fix this? Is this simple enough to fix by myself by contacting IRS? Or would I be better off with a lawyer representing me?

    If you can’t help with this, can you kindly refer me to someone who handles this kind of cases?

    thanks,
    Mo

  2. #2
    Join Date
    Oct 2014
    Posts
    8,238

    Default Re: Unfilled Taxes - Notice of Deficiency - $46,000. How to Fix This

    Usually you would get at least one letter asking you to file the returns and then a notice of proposed assessment (NOPA) about this prior to getting the statutory notice of deficiency (SNOD). If the SNOD is the first notice you received, had you moved after you filed your last return? It would have been easier to deal with this earlier in the process. You are correct that the basic way to fix this problem is to prepare the returns you should have filed taking the credits and deductions you were entitled to claim and provide them to the IRS, attached as support to a copy of the SNOD and mailed to the office that sent you the SNOD. The problem is that once the SNOD is issued, the 90 days (not 60 days, see Internal Revenue Code (IRC) section 6213(a)) to petition the Tax Court starts to run and cannot be extended. Even when that deadline passes the IRS may still fix the problem.

    If the IRS agrees with everything in the returns you submit then that is not a problem. But if the IRS does not agree with everything and that 90 days is gone the IRS may assess whatever tax it still thinks is owed and you cannot challenge that in court without first paying the entire liability, filing a claim for refund, and then when the refund claim is denied you would go to federal district court or the U.S. court of claims, not tax court. If you really need to challenge this in tax court either because you need to resolve it without paying it first or because the case law on the disputed issues is more favorable in Tax Court you’d want to be sure to file that tax court petition timely.

    You and the IRS can still work it out after filing that petition and it may never get to court. In short, if you want to preserve all your options, you’d make sure that the petition is filed while also working with the IRS to resolve this, hopefully without a lot of pushback from the IRS. If you want to do that, you need a tax lawyer. I cannot recommend any lawyers for you in this forum, but there are various options for searching for lawyers that are available online. You can also try contacting the California for a list of lawyers who concentrate their practice in Tax.

  3. #3
    Join Date
    Apr 2018
    Posts
    3

    Default Re: Unfilled Taxes - Notice of Deficiency - $46,000. How to Fix This

    You are in the ASFR program. What you need to do is file your return. The letter you have probably has a place to mail your return. Or it's in the other letters. Or call 800-829-1040 and get a mailing address. You can petition the tax court, but they are also going to want your returns filed. And if they are accepted and negate any balance due, great. Returns that old, however won't generate refunds.

    Yes, the return is filed Married, separately, as the IRS can not make your wife liable for taxes you earned. Only she can do that by signing the return.

  4. #4
    Join Date
    Oct 2014
    Posts
    8,238

    Default Re: Unfilled Taxes - Notice of Deficiency - $46,000. How to Fix This

    Quote Quoting Mauler
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    You can petition the tax court, but they are also going to want your returns filed.
    The Tax Court will ask for no such thing. The IRS attorney representing the IRS may ask for a return and supporting documentation in an effort to try to settle the matter. But the Court itself does not ask for returns. It is up to the taxpayer to provide evidence to support his/her position in contesting the IRS notice of deficiency if the matter goes to trial. A return provided after the Service has prepared a substitute return won’t cut it and the Court won't be interested in seeing that.

  5. #5
    Join Date
    Oct 2006
    Posts
    16,474

    Default Re: Unfilled Taxes - Notice of Deficiency - $46,000. How to Fix This

    Quote Quoting Taxing Matters
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    The Tax Court will ask for no such thing. The IRS attorney representing the IRS may ask for a return and supporting documentation in an effort to try to settle the matter. But the Court itself does not ask for returns. It is up to the taxpayer to provide evidence to support his/her position in contesting the IRS notice of deficiency if the matter goes to trial. A return provided after the Service has prepared a substitute return won’t cut it and the Court won't be interested in seeing that.
    I am sorry but I disagree. Proving that the IRS calculations are wrong is key to resolving the issue. Preparing a correct return is the best way to prove that the IRS calculations are wrong. I do not see how the court would be uninterested in seeing a return that proves that the IRS calculations are wrong.

    And, while I agree with you completely in regards as to the potential issues in simply responding to the notice of deficiency by filing correct returns, I have actually never seen that fail to produce an improved result.

  6. #6
    Join Date
    Oct 2014
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    8,238

    Default Re: Unfilled Taxes - Notice of Deficiency - $46,000. How to Fix This

    Quote Quoting llworking
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    I am sorry but I disagree. Proving that the IRS calculations are wrong is key to resolving the issue. Preparing a correct return is the best way to prove that the IRS calculations are wrong. I do not see how the court would be uninterested in seeing a return that proves that the IRS calculations are wrong.
    Then you must not have experience litigating in Tax Court. The Tax Court judge will not say to the taxpayer “I want to see a return you prepared for the tax year at issue.” It is not the role of the judge to tell the parties what evidence to produce, let alone tell the parties to produce some document not yet in existence. The court simply takes the evidence presented by each side and uses that evidence, whatever that is, to determine the facts of the case. Moreover, a return prepared by the taxpayer in response to the substitute for return (SFR) is not admissible evidence as it would be hearsay for which no exception applies under the Federal Rules of Evidence (FRE). And for good reason: that return simply states the taxpayer’s position. It does not prove any any of the things claimed on that return. What the court wants to see is the admissible evidence that tends to prove or disprove the taxpayer’s contention. For example, a line item on a return the taxpayer would offer saying he had $5,000 in charitable contributions is worthless to the court - it is no better than the taxpayer getting on the stand and testifying that he made a $5,000 charitable contribution. Indeed, it is worse since the taxpayer testifying on the stand can at least be cross examined. What the court wants to see is basically what the IRS would want to see in an audit: the proof that the charitable contributions were made, i.e. cancelled checks, receipts verification letters from the charity, etc.

    The return offered by the taxpayer may provide a useful format for computing the tax owed by the taxpayer. But it is not necessary to use a return to compute the tax (I have done it many times just using a spreadsheet or a blank piece of paper). Finally, the Tax Court does not actually compute the tax, penalties and interest the taxpayer owes. Rather, it simply rules on whether particular items are allowed or disallowed, and then leaves it for the IRS and the taxpayer to do the computations that result. If they do not agree, then each side then presents its computations to the court for it to rule to upon. See Tax Court Rule of Procedure 155. That does not happen often as the computation is typically quite mechanical once the court has ruled on the disputed items.


    Quote Quoting llworking
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    And, while I agree with you completely in regards as to the potential issues in simply responding to the notice of deficiency by filing correct returns, I have actually never seen that fail to produce an improved result.
    Well of course the return submitted by the taxpayer would be beneficial to the taxpayer or the taxpayer wouldn’t bother submitting it, right? If it would result in a worse outcome, the taxpayer would simply accept the SFR result and move on. And while the IRS may accept one or more items claimed on the return the taxpayer provides without documentation, a court will not simply accept a taxpayer’s contention without admissible evidence to back it up.

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