A notice of deficiency is a letter from the IRS asserting that the taxpayer owes additional taxes. A taxpayer who chooses to dispute the additional tax liability has two methods to contest a notice of deficiency:

  • file a petition for redetermination of the deficiency with the Tax Court, or
    • Note: this should be done with experience legal counsel as significant legal rights can be lost if not done properly.
  • Pay the liability stated in the deficiency notice and file a suit for refund in the Court of Federal Claims or a federal district court.
    • Note: This method has the added advantage of stopping the running of interest but significant litigation disadvantages can occur and the decision to pay and sue for a refund should not be made without experience legal counsel. Interest can also be stopped by posting a bond and then filing in Tax Court.

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