What is the function of a Notice of Deficiency, and what is the taxpayer's time to contest it?

• A. It confirms a tax refund and requires the taxpayer to respond within 30 days
• B. It formally determines a deficiency and gives 90 days to petition
• C. It is issued only after an audit is complete and cannot be contested
• D. It is a notice to request a waiver of penalties within 60 days

Answer: (B)

A Notice of Deficiency is the IRS’s formal determination of the amount of tax deficiency after the audit or review of a taxpayer’s return. It lays out the proposed changes and the amount the taxpayer would owe, and it also tells the taxpayer how long they have to challenge the determination. The key time frame is 90 days to petition the U.S. Tax Court to contest the deficiency. This petition is the proper avenue for review, rather than a refund claim with the IRS. If the taxpayer doesn’t petition within that window, the deficiency becomes final and collection actions may proceed.