4.8.9  Statutory Notices of Deficiency

Manual Transmittal

July 28, 2015


(1) This transmits revised IRM 4.8.9, Technical Services, Statutory Notices of Deficiency.


This section provides guidance on the preparation and issuance of statutory notices of deficiency.

Material Changes

(1) An editorial update is being made to provide the correct information on Exhibit 4.8.9-11, Sample Innocent Spouse - Waiver which was inadvertently omitted on the most recent publication.

Effect on Other Documents

This material supersedes IRM 4.8.9, dated 06/19/2015.


Small Business and Self-Employed (SB/SE) Technical Services Employees

Effective Date


Mary L. Coleman
Director, Technical Services SE:S:E:TS
Small Business/Self-Employed  (06-19-2015)

  1. When the Internal Revenue Service issues a notice of deficiency, the notice must be sent by certified or registered mail.

  2. When taxpayers disagree with a tax determination, they may petition the United States Tax Court (Tax Court) for a judicial determination of the tax liability after receiving a notice of deficiency, without prior payment in full of the tax at issue. This section outlines procedures used by Technical Services' staff for preparing, reviewing, and issuing statutory notices of deficiency under IRC 6212, Notice of Deficiency.

  3. This section does not include procedures for preparing, reviewing and issuing notices of determination of worker classification under IRC 7436, Proceedings for Determination of Employment Status. Those procedures are contained in IRM 4.8.10, Notices of Determination of Worker Classification.

  4. ELMS Course 23428, SB-EX-TS Statutory Notice of Deficiency Training, is a basic course for reviewers on the preparation of statutory notices of deficiency, and is recommended for all new reviewers and detailees.

  5. ELMS Course 29328, SB-EX-TS 90 Day Suspense Course: is an introductory course for newly assigned tax examiners or employees detailed to the 90 day unit in Technical Services.  (07-09-2013)
Notice of Deficiency Definition

  1. A notice of deficiency, also called a "statutory notice of deficiency" or "90 day letter," is a legal notice in which the Commissioner determines the taxpayer's tax deficiency. The notice of deficiency is a legal determination that is presumptively correct and consists of the following:

    1. A letter explaining the purpose of the notice, the amount of the deficiency, and the taxpayer's options

    2. A waiver to allow the taxpayer to agree to the additional tax liability

    3. A statement showing how the deficiency was computed

    4. An explanation of the adjustments

  2. The purpose of a notice of deficiency is as follows:

    1. To ensure the taxpayer is formally notified of the IRS's intention to assess a tax deficiency.

    2. To inform the taxpayer of the opportunity and right to petition the Tax Court to dispute the proposed adjustments.

  3. A notice of deficiency is issued for unagreed deficiencies of income, estate, or gift tax liabilities as well as for certain excise taxes.


    Generally excise tax returns do not follow statutory notice of deficiency procedures.  (07-09-2013)
Criteria for Issuance

  1. A notice of deficiency must be issued when there is a proposed tax deficiency with which the taxpayer does not agree and:

    1. The statute of limitations is imminent and no extension can be obtained,

    2. The taxpayer does not respond to, or file a valid protest to, a 30 day letter, or

    3. The taxpayer requests the issuance of the notice in order to petition the case to the Tax Court.  (07-09-2013)
When Issued

  1. If a 30 day letter (or equivalent) offering an Appeals hearing was issued to the taxpayer, a notice of deficiency should be issued within 60 days of receipt of the case in Technical Services. However, a notice will be issued earlier if the statute of limitations is imminent and no statute extension can be obtained.

  2. The Examination field group secretary will update Examination Returns Control System (ERCS) to the appropriate Technical Services code (TSC) and Status Code 21, In-Transit to Technical Services, and forward the case file to Technical Services for preparation and issuance of the statutory notice of deficiency.

  3. If a case file that has been sent to Technical Services for preparation of a notice of deficiency is selected for sample review, Technical Services will affix the sample selection sheet to the case file and follow the guidelines outlined in IRM 4.8.3, Examination Quality Measurement Staff (Field Exam NQRS).  (07-09-2013)
Authority to Issue Notices of Deficiency

  1. The Commissioner is authorized to issue a notice of deficiency pursuant to IRC 6212(a), Notice of Deficiency, In General.

  2. See Servicewide Delegation Order (Del. Order) 4-8 in IRM, Delegation Order 4-8 (formerly DO-77, Rev. 28) for the officials delegated by the Commissioner to sign and issue a notice of deficiency.

  3. See IRM, Signing and Dating the Notice of Deficiency, and IRM, Authority for Agreement to Rescind, for the authority to sign and date notices and to rescind notices of deficiency that have been issued, respectively.  (07-09-2013)
Who Prepares Notices of Deficiency

  1. The following Technical Services employees prepare statutory notices of deficiency:

    • Tax examiners (TE)

    • Tax compliance officer (TCO) reviewer

    • Tax auditor (TA) reviewers

    • Revenue agent (RA) reviewers  (07-09-2013)
Cases Assigned to Tax Examiners

  1. Tax examiners prepare statutory notices of deficiency for the following:

    1. TCO/TA no show cases,

    2. TCO/TA non-filer cases, and

    3. TCO/TA cases with simple issues and deficiencies of $10,000 or less (may exceed $10,000 if it is a non-filer or no show case).

  2. Cases that should not be reviewed by tax examiners include:

    1. Cases in which an indirect method was used to determine income,

    2. Cases asserting the fraud penalty,

    3. Transferee cases,

    4. Cases involving a community property issue,

    5. Cases involving a whipsaw issue,

    6. Notices of determination of worker classification,

    7. High profile taxpayers, and

    8. Any case in which the manager feels is beyond the scope of the TE.

  3. Delegation Order 4-8 in IRM delegates the authority to sign statutory notices of deficiency to Technical Services managers, revenue agent reviewers GS-12 and above, or tax compliance officers GS-09 and above. Tax examiners are not authorized to sign notices. See IRM, Signing Notices.  (07-09-2013)
Cases Assigned to TCO/TA Reviewers

  1. TCO/TA reviewers prepare statutory notices of deficiency for all other unagreed TCO cases that are not reviewed and prepared by TE reviewers.  (07-09-2013)
Cases Assigned to RA Reviewers

  1. RA reviewers prepare statutory notices of deficiency for the following:

    1. All unagreed SB/SE Field Examination cases,

    2. All unagreed LB&I cases, and

    3. All unagreed Estate and Gift (E and G) cases.


      Statutory notices of deficiency for E and G cases are prepared by the estate tax attorneys and reviewed by the RA reviewers prior to issuance.  (06-19-2015)
Case Review Prior to Preparing Notices of Deficiency

  1. All cases that require a statutory notice of deficiency require a limited review of unagreed issues and procedural requirements. The case should be able to withstand the scrutiny of Appeals and potential litigation in United States Tax Court.

  2. The scope of the case review will be sufficient to ensure the following:

    • Correct technical conclusions

    • Proper consideration and computation of penalties

    • Accurate computation of the tax deficiency

    • Proper completion of all procedural requirements (e.g. ensuring the RGS electronic file is accurate, ensuring proper annotation is made on Form 3198 regarding interest per IRC 6621(c), Determination of rate of interest, etc.)

    • Proper managerial involvement

    • Proper protection of taxpayer rights

  3. Reviewers must determine if the case is sufficiently correct to support the issues, which may require returning the case to the group examiner for clarification or error correction using Form 3990, Reviewer's Report. The reviewer should correct the error(s) in the case without returning it to the examiner, if at all possible.

  4. Reviewers should be aware of cycle time. Cycle time for the various stages of cases in Technical Services is represented in the chart in IRM Exhibit 4.8.2-1. Reviewers should document their time and actions on Form 9984, Examining Officer's Activity Record.

  5. If a case contains an error, Technical Services will revise the report if possible and prepare the notice of deficiency package in order to support the examiner's intent. At the same time, it is the duty and responsibility of reviewers to ensure the taxpayer's rights are protected during all stages of the examination process. See IRM, New 30-Day Letter Required, for additional information regarding when cases must be sent back to the group.


    The reviewer should ensure that no lead sheets, workpapers, or documents are deleted from the RGS electronic file if any revisions are made to the report.  (07-09-2013)
Preliminary Administrative Items Needed for Case Review

  1. When the case is received, the contents of the file are reviewed to ensure the following:

    1. All returns are controlled on Audit Information Management System (AIMS) and ERCS, and the Report Generation Software (RGS) for all years present. See IRM 4.10.15, Report Generation Software, as it defines the returns that must be in RGS.

    2. All returns (original, amended, and superseding) are reflected on ERCS and are in the case file.

    3. All claims are processed and have been considered in the report.

    4. Amended returns (Transaction Code (TC) 976/977) have been considered in the report.

    5. The case is in Status Code 25, Review Type 34 or 35, and Suspense Code 544 or 545.

    6. The 30 day letter was sent to the taxpayer if adequate time remained on the statute(s).

    7. The statute of limitations is correctly reflected on AIMS/ERCS.

    8. Form 895, Notice of Statute Expiration, is properly completed, if required.


      Reviewers must check the statute on Form 895 against AIMS, ERCS, and Integrated Data Retrieval System (IDRS), the stamped received date, and mailing envelope. Do not rely on the statements on Form 895 or AIMS/ERCS/IDRS. Reviewers must check these items personally, to ensure the information is correctly reflected.
      If Form 895 statute information is correct, initial it. If Form 895 statute information is not correct, update the statute information, initial the change, prepare Form 5348, AIMS/ERCS Update, and submit Form 5348 with the case to the manager for approval of both the Form 5348 and Form 895.  (07-09-2013)
IDRS Prints

  1. Obtain current IDRS prints to verify the following information about the case:

    1. AMDISA to verify the applicable years are on AIMS and to verify if any freeze codes are present.

    2. INOLES (for each spouse's social security number, if applicable) to verify the taxpayer's name(s) and address(es).


      IMFOLI/BMFOLI (for each spouse's social security number, if applicable) and RTVUE/BRTVU/TRDBV may also be utilized to verify the last return filed and the address on the last return filed if a concern is noted with the currency of the INOLES address.

    3. CFINK (for each spouse's social security number, if applicable) to determine if a valid power of attorney is on file.

    4. IMFOLT/BMFOLT to verify the amount of tax per return (or as previously adjusted), as well as to verify any possible duplicate return postings and pertinent freeze codes.


      Check the TC 150 and all TC 290/291/294/295/298/299/300/301/304/305/308/309 amounts to ensure that all applicable amounts are considered, not just the original tax as filed.

    5. IMFOLA/BMFOLA to identify any previous adjustments that may have been made to the return and to verify the amount and source of the adjustments.

    6. IMFOLR/BMFOLR to verify the amount of taxable income per return (or as previously adjusted).


      IMFOLR does not reflect negative taxable income. If necessary, the taxable income should be manually computed beginning with adjusted gross income on the IMFOLR. The result should agree with the taxable income per return (or as previously adjusted) as shown on the revenue agent report (RAR).

    7. TXMOD to verify if freeze codes are present and to get a complete history of the taxpayer's account.

    8. Information return processing (IRP) transcript to verify address and income.


      Obtain IRP transcripts for all years under examination for income purposes, as well as IRP transcripts for the most current year for address verification.

  2. Copies of all IDRS prints should be included in the case file.  (07-09-2013)
Correct Technical Conclusions

  1. Reviewers must ensure correct technical conclusions were reached. To do so, reviewers must verify the following:

    1. Adjustments on Form 4318, Form 4318-OA, Examination Work Papers Index-Office Audit, or Form 5701, Notice of Proposed Adjustment, reconcile to Form 4549, Income Tax Examination Changes, and the Form 4318 / Form 4318-OA conclusions agree with the supporting workpapers.

    2. Taxable income per return or as previously adjusted agrees with the taxable income reflected on IMFOLR/BMFOLR as discussed earlier.

    3. Tax per return or as previously adjusted agrees with the tax amount reflected on IMFOLT/BMFOLT as discussed earlier.

    4. Supporting workpapers support the examiner's audit conclusions and are technically correct.

    5. To the extent possible, appropriate standard paragraphs are used to explain the adjustments in the examination report.

    6. IRP transcripts reconcile to tax returns to determine that all significant income items have been considered. However, see IRM (4), Exception to the Minimum Requirements, for procedures when no income issues were identified on the primary return.

    7. Estimated tax payments for non-filer cases are properly input in the appropriate RGS penalty screens for proper computation of applicable delinquency and estimated tax penalties.

    8. Federal income tax withholding for non-filer cases is properly categorized in RGS and is not duplicated through improper input on penalty screens.

    9. Return data was properly input in RGS by analyzing the variance report.  (07-09-2013)
Proper Consideration and Computation of Penalties

  1. All appropriate penalties should be asserted and computed correctly.

  2. The penalty lead sheet (or Form 4318 / Form 4318-OA) should comment on the assertion or non-assertion of applicable penalties, including reasonable cause situations.

  3. The negligence portion of the accuracy-related penalty should not be applied automatically in a no-show case per IRM (5), Negligence.

  4. The substantial understatement portion of the accuracy-related penalty should be properly considered in a no-show case as discussed in IRM (6), Penalty Assertion.

  5. The return filing date should be correctly input in RGS to ensure correct delinquency penalty computation, if applicable.

  6. The case file should include a copy of the group manager's written approval for the assertion of any penalty other than failure to file (FTF), failure to pay (FTP), or estimated tax penalties.  (07-09-2013)
Accurate Computation of Tax Deficiency

  1. RGS must be used to revise examination reports and explanatory standard paragraphs, to the extent possible.

  2. The reviewer will ensure the computation of the tax deficiency is correct. To accomplish this, reviewers should verify the following:

    1. The RAR reflects all statutory adjustments.

    2. The RAR reflects correct taxable income and tax per return (or as previously adjusted), which agree with current IMFOLR/BMFOLR and IMFOLT/BMFOLT, respectively.

    3. The RGS calculations are correct.

    4. Any credits and other taxes are properly categorized in RGS and properly reflected on the RAR.

    5. The computation of tax is correct based on correct return information input as verified through variance analysis. For example, Schedule C net loss is properly input on the appropriate screen to ensure proper calculation of self-employment tax, if applicable.  (07-09-2013)
Error on 30 Day Letter Report

  1. There are times when errors are noted on the examination report after the 30 day letter is issued.

  2. If the corrected report reduces the deficiency reflected on the 30 day letter report and no new issues are raised, the notice of deficiency procedures can proceed. No new 30 day letter is required.  (07-09-2013)
New 30 Day Letter Required

  1. If the new report substantially increases the proposed deficiency or raises new technical issues, a new 30 day letter is required. The reviewer will forward the case back to the group for the new 30 day letter and the case will be suspended for 30 additional days at the group level, if sufficient time remains on the statute of limitations.

  2. For this purpose, "substantial" is defined by reference to the return case criteria in IRM 4.8.2, Case Processing.

  3. Automatic adjustments inadvertently omitted from the 30 day letter report are not considered new technical issues. Similarly, correction of the categorization of an issue (e.g., a prepayment credit incorrectly categorized as an "other credit" ) is not considered a new technical issue that would require a new 30 day letter.

  4. If the corrected report raises a new technical issue, a new 30 day letter should be issued regardless of the amount of the tax increase.

  5. The objective behind issuing a new 30 day letter is to ensure the taxpayer is provided the opportunity to appeal all issues administratively before a notice of deficiency is issued.

  6. Cases that meet the above requirements will be returned to the group by Technical Services for issuance of a new 30 day letter prior to preparation and issuance of the notice of deficiency. If the statute of limitations is imminent (less than 210 days), the case will not require a new 30 day letter and the reviewer will proceed to prepare and issue the notice of deficiency.  (07-09-2013)
Proper Completion of All Procedural Requirements

  1. Reviewers should ensure procedural items are properly completed by the field examiner:

    1. Form 5344, Examination Closing Record, must be properly completed and updated using the file server to reflect any changes made by the reviewer. The reviewer should change the disposal code to "10," Default, run a validation and print a new Form 5344 before issuing the notice of deficiency, since Centralized Case Processing (CCP) relies on RGS for making assessments. It is also recommended to generate a new Form 3198 with the new disposal code.

    2. Form 3198, Special Handling Notice for Examination Case Processing, must be flagged and notated if RGS cannot be used for some reason. Failure to do so could result in an improper assessment or a possible returned case since, absent appropriate comments, CCP will use RGS (or Bureau of National Affairs software (BNA)/Issue Management System (IMS) for LB&I cases) to close the case and make any assessment.

    3. The case history record or activity record must be completed properly, including entries for any activity completed by the reviewer or manager.

    4. The reviewer should ensure that IRC 6404(g) comments are included on the Form 4549, Form 3198, and Form 4318, where applicable.

    5. The reviewer should ensure Form 3198 is properly flagged for restricted interest provisions, when it is applicable. Flagging these cases alerts suspense personnel and prompts them to refer the case to the Technical Services restricted interest coordinator for preparation of the required Form 2285, Concurrent Determinations of Deficiencies and Overassessments in Cases Involving Restricted Interest Provisions of the Internal Revenue Code, prior to closure to CCP. See IRM, Restricted Interest Cases. See IRM, Reasons for Restriction, for a list of reasons that require interest to be restricted.

    6. The reviewer should ensure a 30 day letter was issued and was suspended at the group level to allow the taxpayer time to file a protest if sufficient time remained on the statute of limitations. The date of the day 30 letter should also annotated on the Form 3198 to ensure the proper calculation of interest per IRC 6621(c), Determination of Rate of Interest.

    7. For non-filer cases, the reviewer should ensure Form 13496, IRC Section 6020(b) Certification, is included in the case file for each substitute for return (SFR) year. If the reviewer makes any changes to the report, he or she must complete and sign a new Form 13496.  (07-09-2013)
Proper Managerial Involvement

  1. Managerial involvement during an examination is a significant contributor to case quality and efficiency. In the following situations, written managerial involvement must be included in the file prior to issuance of the statutory notice of deficiency:

    1. Assertion of any penalty other than failure to file, failure to pay, and estimated tax penalties.

    2. Imposition of the 2 or 10 year EITC ban per IRC 32(k)(1)(B)(ii).

  2. If the case file does not reflect written managerial approval, the reviewer must ensure this written approval is included in the case file prior to issuing the statutory notice of deficiency.

  3. Refer to the following for guidance:

    • IRC 6751(b), Procedural Requirements,for assertion of certain penalties

    • IRM, Managerial Approval of Penalties

    • IRM 4.19.14, Examination Penalty Assertion

    • IRM, Two and Ten Year Bans on Claiming the Earned Income Tax Credit (EITC)

    • IRM Exhibit 4.8.3-1, TP/POA Rights and Notification, Attribute 617  (07-09-2013)
Proper Protection of the Taxpayer's Rights

  1. Reviewers must ensure the taxpayer's rights have been protected by considering the following:

    • Power of attorney (POA) requirements

    • Confidentiality privileges - accountant/client privilege

    • Notification of appeal rights

    • Innocent spouse relief

    • Interest abatement

    • Consideration of collectibility

    • Early referrals to Appeals

    • Separate notice for joint filers requirements

    • Employee contact information requirements

    • Confidentiality of taxpayer information/privacy requirements

    • Unauthorized access (UNAX) requirements

    • Third-party contact requirements

    • Form 10949, Statute Extension Checksheet  (06-19-2015)
Other Items to Consider During the Review

  1. When reviewing the case, the reviewer must ensure the following:

    1. Corresponding adjustments are considered, including but not limited to self-employment tax, EITC, AGI adjustments, filing status, child tax credit, etc.

    2. Other taxes and credits appear on the RAR correctly.

    3. Corresponding basis is allowed if a capital gain was adjusted.

    4. Standard paragraphs are used to explain the adjustments, including statutory adjustments, on the Form 886-A, Explanation of Items, (or equivalent), whenever possible.

    5. For a delinquent tax return, the TC 160/166 (Failure to File penalty), the prepayment credits and the date the return was received agree with the RGS penalty schedule.

    6. Taxable income on the Form 4549 reconciles to the taxable income amount on the IMFOLR/BMFOLR.

    7. The POA is valid and current (if attached), or if a transcript reflects a TC 960, a current CFINK is secured.

    8. Interest suspension is properly considered under IRC 6404(g), Abatements, and is properly noted on Form 3198.

    9. Transactions posted to the taxpayer's account should be reviewed to determine if a deficiency exists requiring the issuance of a statutory notice of deficiency.

    10. Payments on the account are reviewed to see if the taxpayer has full paid the proposed liability by payments other than IRC 6603 deposit. See IRM, Execution of Audit Reports and Payment, for further information. To identify IRC 6603 deposits, see IRM, How to Identify A Deposit on the Tax Module.

    11. Premium Tax Credit (PTC) is computed correctly after adjustments to the filed return are made. PTC is a new, refundable credit available to individuals who meet certain income requirements and purchase their insurance through the Health Insurance Marketplace. It may be paid in advance directly to the issuer on behalf of the individual to reduce the cost of health insurance premiums. Individuals claim PTC and reconcile any advance payments of PTC on their tax return; however, the PTC may be adjusted when the taxable income is changed due to the examination adjustments.

  2. While reviewing the file, reviewers must also take the following steps:

    1. Establish the source of the last known address through information in the file such as correspondence, examiner's notes, etc.

    2. Establish also-known-as names and additional addresses from current year IRPTRO, Form 3198, postal tracer, 30 day letter, and electronic asset locator and people locator service, if warranted. Check the Reference Net website at http://rnet.web.irs.gov/rs/index.htm for the IRS's current asset locator/people locator electronic tool.

    3. Check for freeze codes, which might indicate a duplicate return, innocent spouse, disaster area, bankruptcy, restricted interest, or criminal investigation among others.  (07-09-2013)
Preparing Notices of Deficiency

  1. The notice of deficiency is a legal determination that is presumptively correct. The notice of deficiency consists of the following:

    • A letter explaining the purpose of the notice, the tax period(s) involved, the amount of the deficiency and the taxpayer's options

    • A waiver to allow the taxpayer to agree to the additional tax liability

    • A statement showing how the deficiency was computed

    • An explanation of the adjustments

  2. Overassessment and "no-change" years should not be included in a notice of deficiency. See IRM, Overassessments and Claims.  (07-09-2013)
Taxpayer Name

  1. The taxpayer's name and address appears throughout the notice of deficiency. It is extremely important that the taxpayer is correctly identified since even minor typographical errors in the name or address may affect the validity of a notice of deficiency.

  2. For corporations, use the name of the corporation as shown on the corporate seal. If unavailable, use the name shown on the tax return. In corporate reorganizations, include both the current and the former name. Similarly, if the corporation changed its name since filing the return, address the corporation on the letter, schedules and attachments as "ABC Corporation, formerly known as XYZ Corporation."

  3. For individual married filing joint returns:

    1. If both spouses use the same last name, the notice should reflect either "John and Mary Doe" or "John Doe and Mary Doe."

    2. If the spouses use different last names, the notice should reflect "John Doe and Mary Smith."

    3. If the spouse remarries, the notice should reflect "John Doe and Mary Smith, formerly known as Mary Doe."

    4. For returns where the taxpayers are divorced or separated, one or both have changed their name or address since the return was filed, and the IRS was informed of the name or address change via Form 8857, Request for Innocent Spouse Relief, the IRS cannot disclose the new name or address to the spouse or ex-spouse. Use the names as shown on the return as filed. Each spouse's notice will bear his or her own current address, without reference to the address of the other.

  4. For individual married filing joint returns where one spouse has died since the joint return was filed, then take the following actions:

    1. If a fiduciary relationship is unknown, the notice should reflect: "John Doe (Deceased) and Mary Doe" or "John Doe (Deceased) and Mary Doe, Surviving Spouse."

    2. If a fiduciary relationship is known, the notice should reflect: "John Doe (Deceased), Richard Doe, Executor and Mary Doe."

    3. If a fiduciary is required to give notice to the IRS of the fiduciary relationship. Form 56, Notice Concerning Fiduciary Relationship, may be used for this purpose.

  5. If "also known as" is used, it should be included in the name and spelled out (e.g., "John Doe, also known as Jack Doe)."

  6. The name on the front of the return, not the taxpayer's signature, is the name to be used in the notice. If the taxpayer's signature is different from the name on the front of the return, the signature name may be used as an "also known as" (e.g., "John Doe, also known as John C. Doe)."

  7. When in doubt, use the IDRS command code NAMEE or NAMES for verification.  (06-19-2015)
Taxpayer Address

  1. The mailing address for a notice of deficiency must be the taxpayer's last known address.  (07-09-2013)
Last Known Address

  1. Rev. Proc. 2010-16, 2010–19 I.R.B. 664, defines "last known address" as the address on the most recently filed and properly processed tax return unless the taxpayer has clearly and concisely notified the IRS of a change of address. The IRS may also update the taxpayer's address of record by using the United States Postal Service's (USPS) National Change of Address database (NCOA database) in accordance with Treas. Reg. 301.6212-2. The NCOA database is forwarded weekly to the IRS, at which time master file is updated with any changes. Address changes accepted and changed due to the NCOA address updates are identified by a TC 014 on IMFOLE/BMFOLE/ENMOD with special document locator numbers (DLNs). See IRM, Determining National Change of Address (NCOA) Address Changes, to identify NCOA DLNs.

  2. If there is any doubt as to what the last known address is, additional duplicate original notices should be sent to each known address.  (07-09-2013)
Clear and Concise Notification

  1. A statement signed by the taxpayer informing the IRS to change the address of record is considered clear and concise notification. The statement must also contain the taxpayer's full name, signature, old address, and social security number and/or employer identification number.

  2. Form 8822, Change of Address, may be used to make the change.

  3. Correspondence sent by the IRS that solicits or requires a response from the taxpayer, which is returned to the IRS by the taxpayer with corrected taxpayer address information, constitutes clear and concise notification of a change of address (even if the taxpayer's signature is not on the correspondence).

  4. Standing alone, the following situations will not constitute clear and concise notification of a new address and, therefore, should not result in a change to a taxpayer's address of record. A new address reflected on the following:

    • Letterhead of taxpayer correspondence

    • Return envelope

    • Taxpayer's remittance form

    • Post office notice (other than by means of United States Postal Service's (USPS) National Change of Address (NCOA) database  (07-09-2013)
Elements of a New Address

  1. The following are elements of a new, complete address:

    • Number and street (or P.O. box number)

    • Apartment or suite number, if applicable

    • City or town, state and zip code

  2. There should be no abbreviations in the taxpayer's address, except for the two-letter state code. However, if the last known address reflected on the last filed and properly processed tax return contains abbreviations, then that address (with abbreviations) may be used. If notices are sent to foreign countries, the name of the country should not be abbreviated.  (07-09-2013)
New Addresses Secured by Telephone or Interview

  1. Address changes may only be made from the taxpayer's oral statement (i.e., telephone or walk-in contact) to perfect an error in the existing address or if the conversation concerns an open account or adjustment request from the taxpayer. See Rev. Proc. 2010-16, 2010–19 I.R.B. 664.

  2. Authentication of the caller's identity using the criteria in IRM, Required Taxpayer Authentication, and IRM, Other Third Party Inquiries, is required before making changes to the taxpayer's address of record.

  3. Any request solely for an address change, other than for perfection or in connection with an open account or adjustment request, must be in writing.  (07-09-2013)
Establishing the "Last Known Address"

  1. The following steps should be taken to determine the taxpayer's "last known address:"

    1. Search IDRS for the most recently filed tax return and other information using appropriate CFOL and IDRS command codes including INOLES, SPARQ, IRPTRO, IMFOLE, ENMODA.

    2. Search under both the primary and secondary social security numbers, if applicable.

    3. Search under the employer identification number (EIN) if the taxpayer has filed a Schedule C.

    4. Search the administrative file for "clear and concise" notification since the date of the last filed return.

    5. Scrutinize the power of attorney for a different address. Compare the signed dates found on the power of attorney to those found on the most current filed return. Discuss address concerns with representatives appointed under Form 2848, Power of Attorney and Declaration of Representative.

    6. In no event should databases or information outside of IRS systems be consulted for addresses. Alternative addresses, to the extent that they are used, must have been provided to the IRS by the taxpayer or his representative (or other agent).  (07-09-2013)
Fiduciary Relationship

  1. Form 56, Notice Concerning Fiduciary Relationship, is used by an individual to notify the IRS of a fiduciary relationship. Other legal documents establishing fiduciary relationships may be substituted for the Form 56. If a document other than Form 56 is submitted, check with Area Counsel to determine if the document is sufficient to establish a fiduciary relationship.

  2. A statutory notice of deficiency must be mailed to the fiduciary's mailing address as well as to the taxpayer's last known address as: "John Doe (Deceased), Richard Doe, Executor and Mary Doe."

  3. If the IRS is aware that a taxpayer is deceased, it must be determined if a fiduciary exists prior to issuing the notice of deficiency. Do not assume the surviving spouse is the personal representative of the decedent. If the case file does not specifically identify a fiduciary, the case should be returned to the group to obtain the name of the fiduciary.  (07-09-2013)
Divorced or Separated Taxpayers

  1. Separate original notices will be sent to each spouse at their last known address. The notice letters and waivers will identify the names of both spouses but will only include the address of the spouse to whom the notice is sent without reference to the address of the other spouse.

  2. For a married filing joint return where the taxpayers are divorced or separated, one or both have changed their name or address since the return was filed, and the IRS was informed of the name or address change via Form 8857, Request for Innocent Spouse Relief, the IRS cannot disclose the new name or address to the spouse or ex-spouse. Use the name as shown on the return as filed but only include the address of the spouse to whom the notice is sent without reference to the address of the other spouse.

  3. For a married filing joint return where the taxpayers are divorced and one spouse remarries, duplicate joint notices are sent as follows:

    Condition Address as follows:
    One letter and one waiver sent to John Doe
    John Doe and
    Mary Smith, formerly Mary Doe
    (John Doe's last known address)
    One letter and one waiver sent to Mary Smith
    John Doe and
    Mary Smith, formerly Mary Doe
    (Mary Doe's last known address)  (07-09-2013)
Incarcerated Taxpayers

  1. If a taxpayer is incarcerated at the time the notice of deficiency is mailed, duplicate original notices are sent to the following:

    1. The address on the taxpayer's last filed return.

    2. The address where the taxpayer is incarcerated.

  2. The address on the Letter 531, Notice of Deficiency, should be where the taxpayer is incarcerated and should reference the prisoner locator number, if available.

  3. For federal prison inmates, the prisoner locator number and address can be obtained from the Bureau of Prisons web site.

  4. For state prison inmates, the prisoner locator number and address can be obtained from the individual state web sites, using the search term "inmate locator" or "department of corrections." Additionally, the following site provides search capabilities for all 50 states: http://www.vinelink.com/vinelink/initMap.do.

  5. Both notices should be sent certified/registered mail.  (06-19-2015)
APO/FPO Addresses

  1. Deficiency notices sent to Army Post Office (APO) / Fleet Post Office (FPO) addresses must be mailed to such addresses by certified mail. However, if the Military Post Office (MPO) address is located outside of the United States, the taxpayer will be entitled to 150 days after the notice of deficiency was mailed to file a petition with the Tax Court.

  2. The Military Postal Service (MPS) is a segment of the United States Postal Service (USPS) and provides postal service to members of the armed forces stationed outside the United States. The MPS consists of military post offices operated by each branch of the armed services and staffed by military personnel. Mail addressed to APO / FPO addresses are routed to gateway locations within the United States where APO / FPO mail is sorted and directed to the appropriate MPO. An APO / FPO address consists of a numerical code that identifies the location of an overseas MPO and the location of the United States gateway concentration point.

  3. In Brown v. Commissioner, 78 T.C. 215, 221, acq. 1982–2 C.B. 1, the Tax Court held that a notice of deficiency mailed to a New York APO address where mail would be collected and directed to Saudi Arabia was mailed to an address outside the United States. Therefore, the taxpayer was entitled to 150 days after the notice of deficiency was mailed to file a petition with the Tax Court.  (07-09-2013)
Notice of Deficiency Letter

  1. Letter 531 is the notice letter used most often in income tax cases. The most current version of the letter should be used.

  2. The reviewer should not date the notice of deficiency letter. The date will be added when the notice is issued.

  3. The notice must include the name, telephone number, and the unique identifying number of the person to contact.


    This person must clearly identify himself or herself using his or her name and employee identification number when answering a specific taxpayer inquiry.

  4. The "Last Day to File a Petition with the United States Tax Court" date should not be inserted when the notice is prepared by the reviewer. The date is entered when the notice is issued.

  5. The notice of deficiency letter should specify the amount of tax and penalty for each tax period, but should not include the interest amount. An attachment to the letter may be used if space does not permit the tax and/or all applicable penalties to be listed for all years. The letter will be notated with "SEE ATTACHED." The attachment to the letter is a separate page behind the letter in the notice that is titled "Attachment to the Letter" and includes a chart of all tax and penalties by year.

  6. The deficiency notice must advise taxpayers of their right to contact the local office of the Taxpayer Advocate and must provide the location and telephone number of the appropriate office.  (07-09-2013)
Waiver Preparation

  1. Form 4089-B, Notice of Deficiency-Waiver, or Form 4549, Income Tax Examination Changes, is included in the notice package to allow the taxpayer to agree to the assessment of the proposed deficiency. The waiver should contain the following:

    1. Name and address of the taxpayer exactly as they appear on the Letter 531 or Letter 902 (D), Notice of Deficiency.

    2. Summary of the tax liability for each year with separately stated deficiencies and penalties. Each penalty should be listed separately by title and code section. If space does not permit the separate listing of the individual penalties on the Form 4089-B, a summary total of the penalties can be placed on the Form 4089-B (with a notation, SEE ATTACHED), with the details of the individual penalties reflected on a separate page labeled "attachment to the waiver form."  (07-09-2013)
Multiple Addresses

  1. As noted earlier, there are instances when it becomes necessary to issue a notice of deficiency to more than one address. In all instances, the address on the notice letter, the waiver, and the mailing envelope should be the same.

  2. The waiver is required to use the name and address of the taxpayer exactly as they appear on the notice letter.

  3. To the extent possible, reviewers are required to use RGS to generate notices of deficiency. The notice and any workpapers created by the reviewer should be saved in the RGS electronic file.

  4. When the notice of deficiency includes Form 4549-A, Income Tax Discrepancy Adjustments, (also known as the "unagreed" report) or Form 5278, Statement - Income Tax Changes, as the computation statement, the reviewer must also prepare Form 4089-B. When printing Form 4089-B, RGS will allow the reviewer to select "all addresses" and will print multiple Form 4089-B, each with different addresses as entered in the Case Information.

  5. For MFJ cases, RGS will allow a current address for "primary," "joint," and "secondary" taxpayers, thus allowing three reports to be printed with different addresses. However, RGS does not allow for printing reports using Form 4549 or Form 4549-A with multiple addresses for "one person" returns (i.e., MFS, single, head of household). The reviewer must change the current address designation in the Case Information screen before printing each copy of the report. Depending on how many addresses are used, this procedure can be very time consuming.

  6. Form 5278 does not reflect the taxpayer's address. Instead, as noted earlier, Form 4089-B, Notice of Deficiency Waiver, is included as the waiver, which includes the address information. For this reason, reviewers are encouraged to use Form 5278 and Form 4089-B for those notices of deficiency that require multiple addresses.  (07-09-2013)
Computation Statement

  1. Since Form 4089-B is used as a waiver, then Form 4549-A, Income Tax Discrepancy Adjustments, or Form 5278, Statement of Income Tax Changes, should be used for all individual, corporate, and fiduciary income tax returns to reflect the list of adjustments and the computation of the proposed deficiency. The layout is similar to the Form 4549 and the instructions for completing Form 4549 are applicable.  (07-09-2013)
Explanation of Adjustments

  1. An explanatory paragraph in a notice of deficiency has two purposes:

    1. To inform the taxpayer in clear and concise language of the adjustments, and

    2. To state the position or positions of the IRS with respect to the adjustments being made.

  2. The adjustments should be explained in the order in which they appear on the report to the extent possible. However, it is not necessary for items to be in order when it is not expedient to change them. Reviewers should not be rearranging the explanations nor should the case be returned to the examination group to comply with this requirement. The order in which the explanations appear will not render a notice invalid.

  3. Use applicable standardized language as published in IRM Exhibit 4.10.10 - 2, Standard Explanations, or language previously approved by Area Counsel. These explanations may be modified to address specific facts of the case.

  4. When adjustments to Non-TEFRA partnerships or Sub-chapter S corporations are involved, the notice should include specific details on the adjustments being passed through. The following procedures should be followed:

    1. The explanation of adjustments for the partner/shareholder should include a brief explanation that the taxpayer's share of income from the flow-through entity is adjusted.


      Ordinary Income from S Corporation
      It is determined from our examination of the books and records of the S Corporation known as XYZ, Inc. (EIN 12-3456789) that your correct share of its ordinary income for the taxable year 2001 is $25,000.00 rather than the $5,000.00 reported on your tax return. See Exhibit A for more details of the adjustments to XYZ, Inc.

      Accordingly, this adjustment increases your taxable income in the amount of $20,000.00 for the taxable year ended December 31, 2001.

    2. Include as the exhibit, a schedule that includes a detailed breakdown of the adjustments, as well as detailed explanations of the individual adjustments to the flow-through entity in the same format as the other explanations within the notice. Exhibit 4.8.9-1, Sample Exhibit for Use with Flow-Through Entities, contains a sample Exhibit for flow-through entities. In the alternative, a copy of the entity (S corporation or partnership) RAR with explanations can be used as the exhibit providing the explanations of adjustments made to the flow-through entity are in the same format as the other explanations within the notice and are sufficiently detailed to allow the taxpayer to understand why the adjustments were made.  (07-09-2013)
Sentence Structure and Content

  1. Use the present tense in wording paragraphs rather than the past tense. This presents the IRS's position as of the issue date rather than a prior decision.

  2. Use positive phrasing whenever possible. State that the "allowable amount is" rather than the "disallowance is." However, the position of the IRS should be clearly stated.

  3. Do not use general qualifying phrases such as "based on the information in our files" since it implies the IRS is using information unknown to and withheld from the taxpayer. Instead, use the phrase "it is determined" where appropriate.

  4. Do not describe an item as a "deduction" and then disallow it because it does not qualify as an allowable deduction.


    Do not say: "It is determined that the deduction of $1,000 claimed as rent expense is not deductible since the amount was not paid or accrued during the taxable year." Instead say: "It is determined that the amount of $1,000 claimed as rent expense is not deductible since the amount was not paid or accrued during the taxable year."

  5. Avoid so-called "net adjustments" since they tend to be difficult to follow and may present a question as to the actual amount at issue.

  6. The following phrases are often used at the end of a paragraph to clarify how the adjustment affects the tax return:

    1. Accordingly/therefore, taxable income is increased/decreased.

    2. Accordingly/therefore, tax is increase/decreased.

  7. The length of the paragraphs should be sufficient to clearly state the conclusions. Additional information may be needed to show the detail of certain determinations. For example:

    1. Explanatory paragraph: A paragraph which determines that an unreported capital gain transaction results in $10,000 of long-term capital gain may be supplemented with a computation showing the amount realized, adjusted basis, and gain to be taken into account, as well as other pertinent figures, etc.

    2. Exhibit: Use a separate exhibit or schedule to show voluminous details and reference the exhibit or schedule in the explanatory paragraph, such as "See Exhibit A attached." This is of particular concern when making income adjustments as the notice should contain sufficient detail to support the adjustment being made. For indirect methods, include an exhibit to show the computation. Refer to IRM Exhibit 4.10.4-4 , Example of Financial Status Analysis for Individual Business Returns; IRM Exhibit 4.10.4-9 , The Bank Deposits and Case Expenditures Method: Example of Computation of Gross Receipts; and IRM Exhibit 4.10.4-10 , Source and Application of Funds Method: Example of Computation for Cash and Accrual Basis Taxpayers, for additional information and sample formats.

    3. Depreciation calculation: For depreciation adjustments, Form 1914, Computation of Allowable MACRS/ACRS/Depreciation Deduction, may be included to show the depreciation computations. It is highly recommended to include this form for cases in which Form 1914, or equivalent, was not included with the 30 day letter as required by IRM, Depreciation.

    4. Listing of sources: Identify the source of unreported income in the explanatory paragraph.

  8. State the taxable year(s) involved in each explanatory paragraph, particularly when the statutory notice covers more than one taxable year.  (07-09-2013)
Citing Code Sections

  1. Cite code sections only to the extent necessary to inform the taxpayer of the real nature of the adjustment. Use of code sections can unnecessarily limit or narrow the Commissioner's position. If code sections are cited, make sure all applicable code sections are cited.

    1. Never use code citations as the only explanations for disallowance.

    2. Do not use references to regulations or decided court cases.

  2. As a general rule, it is preferable to use exact Code language rather than attempt to paraphrase Code language. For example, the statement, "Since it has not been established that your farm was operated with the intention of making a profit, the amounts deducted are not ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business." should be used rather than the statement "You have not shown that such claimed deductions were connected with a business activity during your taxable year."  (07-09-2013)
Explanatory Paragraphs for Additions to Tax or Penalties

  1. Include explanatory paragraphs for the additions to tax or penalties.

  2. Show the paragraphs on the waiver or on a continuation sheet attached to the waiver. The paragraphs may also be placed behind the paragraphs explaining the various adjustments to income, credits, etc.

  3. RGS penalty schedules:

    1. The penalty schedule generated by RGS can be attached to the waiver or placed behind the explanation of adjustments.

    2. If the RGS penalty schedules are included in the notice, the explanatory paragraphs described in paragraphs (1) and (2) will not be necessary since the RGS penalty computation schedules include appropriate explanatory paragraphs.

    3. If the explanatory paragraphs included on the RGS penalty schedules are not acceptable, include explanatory paragraphs within the notice.  (07-09-2013)
"Duplicate Original" Notices Defined

  1. "Duplicate original" notices, a term used throughout this text, means an originally signed Letter 531 that is sent by certified or registered mail. The "Duplicate" notice may reflect a different address for the taxpayer than the "Original" notice.  (07-09-2013)
Reviewing the Notice of Deficiency

  1. To ensure the accuracy of the statutory notice, the proposed notice should be checked to ensure it is legally sufficient before it is issued.

  2. In certain instances, as outlined in IRM, Mandatory Area Counsel Review, statutory notices will also be reviewed by Area Counsel.  (07-09-2013)
Before Issuing the Notice of Deficiency

  1. Before a statutory notice is issued, the proposed notice should be double checked to ensure it is legally sufficient and free of typographical errors.

  2. This last check is limited to the following:

    1. The accuracy of the taxpayer's name, taxpayer identification number (TIN), and address on the letter, the waiver, and the envelope.

    2. The proper consideration of the taxpayer's last known address, including the use of multiple addresses, if appropriate.

    3. The reconciliation of the adjustment amounts reflected on the computation statement (report) to the amounts shown on the attachments.

    4. The reconciliation of the deficiency and penalties, if applicable, reflected on the Letter 531 (or equivalent) to the amounts reflected on the computation statement (report) and to the amounts reflected on the waiver.  (07-09-2013)
Area Counsel Review

  1. The authority to issue a notice of deficiency rests with those IRS officials delegated the authority by Servicewide Delegation Order 4-8, as outlined in IRM, Authority to Issue Notices of Deficiency.. The role of Area Counsel in the notice of deficiency process is to provide advice on whether a notice of deficiency should be issued, and if so, to make recommendations concerning the issues asserted and the wording of the determination.

  2. The notices of deficiency that are required to be reviewed by Area Counsel are listed in IRM, Mandatory Area Counsel Review. However, the mandatory review may be waived if the area director and Area Counsel concur.

  3. Other communications, whether formal written inquiry or informal verbal contact, with Area Counsel are encouraged to resolve questions while notices are being prepared. Area Technical Services offices may seek informal advice for any case for which Technical Services feels Area Counsel advice is warranted.

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