SFR and 90 day notice of deficiency

Technical topics regarding tax preparation.
#1
Posts:
62
Joined:
21-Feb-2015 1:19pm
Location:
Rockville, MD
Hello! A new client for 2021 has recently asked me to assist with her 2017 tax return which was apparantly paper filed using her prior paid preparer in October 2018. However the IRS never received the return and sent her a notice about this in 2018 or 2019 but because she moved she didn't receive it. Then in 2020 right before the pandemic the transcript shows the SFR was prepared and examination opened. However she didn't receive the 90 day letter until a few months ago. I am told that she previously tried to resubmit the tax return but I suspect that it was sent to a regular service center address as opposed to the ASFR unit and as such also never appears to have been processed.

I spoke to someone at the IRS who told me to simple resubmit it and we don't need to file the 90 day notice court request. Is that correct? Simply resubmitting the return should hopefully get it accepted and the tax, penalties and interest adjusted?

Second, is that the 2017 return has some high Schedule C deductions for two lines (Auto and Meals) and I highly doubt the taxpayer has adequate records for those. I'm wondering if it'd be a better idea to adjust the return and report a lower amount of deductions to avoid having it contested/further examined. Are the odds likely of an examination once we submit the return?

Many thanks!
 

#2
Posts:
62
Joined:
21-Feb-2015 1:19pm
Location:
Rockville, MD
Also wanted to add I found this Tax Adviser article https://www.thetaxadviser.com/issues/2019/oct/substitute-returns-procedure.html which states, "When a taxpayer does not respond to the 90-day letter, an assessment is made using the information in the letter. A taxpayer can then file a return to report the correct tax. The IRS can accept or examine the return and, if warranted, adjust the assessment."

So I know we can certainly file the return. I just want to ensure there's no reason to file the tax court petition. My understanding is that is more for appealing an assessment where a return has been filed
 

#3
Posts:
833
Joined:
10-Jul-2022 9:41am
Location:
Northern California
IMHO, if the 90-day window is still open, then file the petition. Otherwise, the client is giving up an important appeal right. The Tax Court provides a “Petition Kit” that contains all of the forms and instructions:

https://www.ustaxcourt.gov/resources/forms/Petition_Kit.pdf

Under Rev. Proc. 2016-22, after the petition has been filed, the case will be referred to IRS Appeals, where you can submit the return and the correct tax can be determined:

https://www.irs.gov/pub/irs-drop/rp-16-22.pdf
 

#4
Posts:
2656
Joined:
28-Apr-2021 7:00am
Location:
FL
This is a no-brainer. I consider it malpractice to let the 90 day period lapse. The file has moved out of audit and into District Counsel's office. The case has already become more expensive to resolve. Don't let it get even worse. File the Petition and attach the return.
Steve
 

#5
Posts:
833
Joined:
10-Jul-2022 9:41am
Location:
Northern California
gatortaxguy wrote:This is a no-brainer. I consider it malpractice to let the 90 day period lapse. The file has moved out of audit and into District Counsel's office. The case has already become more expensive to resolve. Don't let it get even worse. File the Petition and attach the return.

First, the file is not with “District Counsel's office.” District Counsel no longer exists. The file is sitting in Technical Services at the IRS. It won’t move to Area Counsel until a petition is filed and Technical Services is notified by Area Counsel of the filing, or 105 days have passed since the notice was issued, in which case the notice of deficiency is “defaulted.”

Second, do not attach the return to the petition. The petition that is included in the “Petition Kit” says, “Please do not submit tax forms, receipts, or other types of evidence with this petition.” You can submit the return when the case gets referred to Appeals.
 

#6
Posts:
2656
Joined:
28-Apr-2021 7:00am
Location:
FL
Thanks for the correction. But I'd still file and attach the return.
Steve
 

#7
Posts:
833
Joined:
10-Jul-2022 9:41am
Location:
Northern California
gatortaxguy wrote:Thanks for the correction. But I'd still file and attach the return.

I wouldn't attach the return. In my experience, the Tax Court will separate this from the petition and return it to the petitioner because the Court considers this as evidence that must first be submitted to the Commissioner.
 

#8
Posts:
2656
Joined:
28-Apr-2021 7:00am
Location:
FL
thanks. I was not thinking that it was a way to file. I was thinking more along the lines of simplifying the Petition by just referring to the attachment (and advising that it had already been filed.) Same result either way.
Steve
 

#9
Posts:
62
Joined:
21-Feb-2015 1:19pm
Location:
Rockville, MD
Thank you everyone for the comments, so I actually called the IRS later that day I posted that initial post and the person told me the case was closed and that an amended return was forwarded for processing. Sure enough the account transcript now reflects the "amended return" that the taxpayer had previously submitted was forwarded for processing in December 2021 (this didn't appear on the transcript pulled a month ago). So it sounds like the deficiency notice has been closed and there's no reason to send in the petition.

Crazy timing for all of this.
 

#10
Posts:
833
Joined:
10-Jul-2022 9:41am
Location:
Northern California
Sounds like the 90-day period for filing a petition expired.
 

#11
Posts:
62
Joined:
21-Feb-2015 1:19pm
Location:
Rockville, MD
NoCalCPA85 wrote:Sounds like the 90-day period for filing a petition expired.

Why do you say that? It was open until the 15th
 

#12
Posts:
833
Joined:
10-Jul-2022 9:41am
Location:
Northern California
Did I misread your post? You said, "So it sounds like the deficiency notice has been closed."

You said that the account transcript "reflects" the amended return that was filed, but you didn't say that it had been accepted or processed. So, despite filing an amended return that hasn't yet been processed, according to the IRM, the IRS is required to wait for an additional 15 days past the 90th day before closing a notice of deficiency case. What if the IRS decided to reject the amended return and then assess the amounts shown in the notice of deficiency after no petition was filed?
 

#13
Posts:
62
Joined:
21-Feb-2015 1:19pm
Location:
Rockville, MD
NoCalCPA85 wrote:Did I misread your post? You said, "So it sounds like the deficiency notice has been closed."

You said that the account transcript "reflects" the amended return that was filed, but you didn't say that it had been accepted or processed. So, despite filing an amended return that hasn't yet been processed, according to the IRM, the IRS is required to wait for an additional 15 days past the 90th day before closing a notice of deficiency case. What if the IRS decided to reject the amended return and then assess the amounts shown in the notice of deficiency after no petition was filed?

Got it, the representative I spoke with indicated the examiner closed the case because the return was filed. I assumed that because the transcript now reflects the return was forwarded for processing that this is why the case was closed and nothing further needs to be done. Does that not sound correct to you? Which IRM section are you referring to?

The tax advisor article and several other sources make it seem like SFR reconsideration is pretty automatic.
 

#14
Posts:
833
Joined:
10-Jul-2022 9:41am
Location:
Northern California
terpfan101 wrote:Got it, the representative I spoke with indicated the examiner closed the case because the return was filed. I assumed that because the transcript now reflects the return was forwarded for processing that this is why the case was closed and nothing further needs to be done. Does that not sound correct to you?

I don't know. When no petition is filed, the IRS has the right to assess the amounts shown in the notice of deficiency. Whether or not they accept the return is an unknown because they aren't required to do so. That's why we advise the filing of a petition.

Which IRM section are you referring to?

IRM 4.8.9.26(2)
 

#15
Posts:
62
Joined:
21-Feb-2015 1:19pm
Location:
Rockville, MD
Is there a downside to filing tax court petition given return has been filed now and was filed before the 90 day letter was even sent? I don’t want this going to tax court when the return sent in should be processed or at the very least examined. My concern is if the petition is filed it will cause further delays and hassles getting this resolved when the IRS now has a return from 9 months ago to be processed
 

#16
Posts:
833
Joined:
10-Jul-2022 9:41am
Location:
Northern California
Depends on the amounts involved, and you haven't given us this info.
 

#17
Posts:
2656
Joined:
28-Apr-2021 7:00am
Location:
FL
I think of income tax procedure as the file being in only one place at a time. Processing the return is on pause because of the 90 day letter. The file is effectively in the Tax Court. If you don't file a petition the proposed assessment will be assessed and the file will move to Collections. The filed return will not change the assessment. You'll then have the problem of getting the file moved to Audit for "reconsideration". You'd be looking at a triple delay -- Tax Court, collections, audit. The dearth of personnel could easily mean substantial delays at both the Collections and Audit stages, while the petition would get the case to Appeals and then Audit fairly promptly. So I think satisfactory resolution would be more efficiently achieved via filing the petition. (The TP need not hire an attorney to file the petition. It's easy. And the experience will be good for you.)
Steve
 

#18
Posts:
62
Joined:
21-Feb-2015 1:19pm
Location:
Rockville, MD
Thank you both. The tax assessed was $54k plus about 35k in penalties and interest. This is based on income from Sch C of the taxpayers 1099 of $175k or so with no deductions on either Sch A or C as well as an incorrect filing status.

My confusion stems from the fact that the representative said she was reviewing the case history and it was closed on 8/3 (90 day ends 8/16). She said it was because the return was sent for processing and that it was likely received in December prior to the 90 day notice being sent, but due to delays sat unopened for ages.

So it sounded to me like the notice of deficiency was closed and if we filed the petition it would just create problems.
My understanding for the letter 3519 is that they request you file the return and that can resolve things.

If we were to file the petition at this time, is Monday the deadline for it to be postmarked or arrive in DC? I’m in MD so not a huge concern getting it there, just seems like it’s going against what the specific unit told me.

I reviewed the IRM sand found this and it sounds like this may have been what happened.

4.8.9.23.2.5 (07-09-2013)
Information Results in No Deficiency
If the information submitted by the taxpayer results in no additional tax liability to the tax return as filed, the reviewer will:
Prepare a supplemental examination report. On the supplemental report, adjust the amounts shown on the original return. Clearly label the top of the report "Supplement to the Notice of Deficiency." This supplemental report does not nullify or supersede the original notice of deficiency, nor does it extend the period for filing a petition with the Tax Court. The supplemental report will reflect a deficiency and balance due of $0.00 and will, therefore, be a "no change report."
Send Letter 645-T, No Change - After Statutory Notice Issued, to the taxpayer. For married filing joint returns, a copy of Letter 645-T will be sent to each spouse separate, even if they reside at the same address. One copy of Letter 645-T should also be maintained in the case file. Letter 645-T is the official closing letter for the case and signifies that no further examination activity may be taken without instituting re-opening procedures.
Close the case as "no change."
 

#19
Posts:
833
Joined:
10-Jul-2022 9:41am
Location:
Northern California
terpfan101 wrote:The tax assessed was $54k plus about 35k in penalties and interest.

Are you now saying that the IRS processed the return and assessed the tax shown on that return? Or are these the amounts shown on the notice of deficiency.

If the "default date" of the notice of deficiency is 8/16/2022, then the IRS has no right to assess the amounts shown in the notice of deficiency unless the taxpayer signed the waiver that came with the notice or these are the amounts shown in the return that was filed.

As long as the petition is postmarked by 8/16/2022 (the 90th day), it will be timely. It should be sent by USPS certified mail so that you have the green-and-white receipt with the postmark on it.

I'm with gatortaxguy --- file the petition.
 

#20
Posts:
62
Joined:
21-Feb-2015 1:19pm
Location:
Rockville, MD
Those amounts were from the notice based on the SFR. True tax on the return was about $20k. The return has been sent for processing which is what triggered notice in the first place because the return never got filed or received. Will talk to taxpayer and most likely file it to be safe to ensure ASFR recon goes through.

I’ll call Monday and confirm whether they have truly closed/withdrawn the notice of deficiency. If so I suppose the petition isn’t necessary at that point.
 

Next

Return to Taxation



Who is online

Users browsing this forum: CaptCook, ChrisGCPA, Google [Bot], Google Adsense [Bot], JAD, keninmichigan, Nightsnorkeler, ny110010001, oldguy, TheGrog, zl28 and 158 guests