Marcus - Notice of Deficiency: Deadline and Forum
On March 3, 2025, the IRS mailed a statutory notice of deficiency by certified mail to Marcus's last known address, disallowing $96,000 of Schedule C subcontractor expenses for 2022 and asserting a $34,800 deficiency plus a $6,960 §6662 accuracy-related penalty. Marcus had moved on February 1, 2025, and filed Form 8822 in April without telling you. He believes canceled checks and a general ledger will prove the expenses. He also owes $8,200 from 2021 and has paid nothing on the 2022 balance. He asks whether he should "just send the IRS the records and settle it." He is a calendar-year, cash-basis sole proprietor who resides in the United States.
1. What is the last day for Marcus to petition the U.S. Tax Court, and does his move or the Form 8822 change it?
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Rule. Under §6213(a) the taxpayer has 90 days after the notice of deficiency is mailed (150 days if addressed to a person outside the United States) to file a petition. The day of mailing is excluded and counting begins the next day; if the last day falls on a weekend or legal holiday, §7503 moves it to the next business day.
Computation. Mailing date March 3, 2025. Day 1 = March 4. March 4-31 = 28 days; April = 30 (running total 58); May = 31 (total 89); so day 90 is June 1, 2025 - a Sunday. The deadline is Monday, June 2, 2025.
The move. A notice mailed to the last known address is valid even if the taxpayer never sees it. The last known address is what the IRS records showed at the time of mailing; a Form 8822 filed in April 2025 cannot retroactively change it. A petition filed June 3 would be dismissed for lack of jurisdiction and the IRS could assess. The one remaining door is a collection due process hearing under §6330, where he may challenge the underlying liability only if he did not actually receive the notice and had no other opportunity to dispute it (§6330(c)(2)(B)) - a factual fight, not a strategy.
Key point. Mailing records to the IRS does not toll the 90 days.
2. Compare the Tax Court, refund litigation, and audit reconsideration as ways to contest this deficiency. Which should Marcus use and why?
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Tax Court. A prepayment forum: he litigates before paying, and §6213(a) bars assessment and levy while the case is pending. He can put the IRS to its burden on the §6662 penalty and challenge §6751(b) supervisory approval. There is no jury; appeals go to the circuit where he resides. The filing fee is modest, and because the total at issue ($34,800 + $6,960 = $41,760) is $50,000 or less per year, he could elect small tax case procedure under §7463 - but that election is final and gives up the right to appeal.
Refund litigation. He must pay the full amount first, file a claim (Form 1040-X), wait for disallowance or six months, then sue in district court (jury available) or the Court of Federal Claims. The claim must be filed within the later of 3 years from the return's filing date or 2 years from payment (§6511). Expensive, slow, and requires cash he does not have.
Audit reconsideration. Informal re-examination of the same year. Cheap and often effective when the dispute is pure documentation - which is exactly what his checks and ledger address - but it is discretionary, does not stop the 90-day clock, and does not stop collection of the 2021 balance.
Recommendation. Petition the Tax Court before June 2, 2025 to lock in prepayment status and stop assessment, while pursuing audit reconsideration with the campus function or Appeals in parallel.
3. While the case is pending, what is the status of the 2021 balance and of the 2022 deficiency, and what should Marcus do about collection?
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2021 balance ($8,200). Not covered by the Tax Court case. It is already assessed, so the IRS may issue a notice of intent to levy, file a Notice of Federal Tax Lien, or serve a summons. Interest under §6601 and the failure-to-pay penalty under §6651(a)(2) (0.5% per month, capped at 25%, dropping to 0.25% while an installment agreement is in good standing) keep running. Options: pay in full; request a short-term payment plan or an installment agreement (Form 9465); request Currently Not Collectible if he cannot meet basic living expenses; or pursue an offer in compromise if the liability is genuinely uncollectible.
2022 deficiency. A timely petition bars assessment and collection while the case is pending. Do not expect the failure-to-pay penalty to run on the deficiency yet: §6651(a)(2) applies to tax shown on a return, and for a deficiency the clock starts only after notice and demand plus the 21-day period (then §6651(a)(3) applies). Statutory interest still runs from the original due date. A partial payment designated to 2022 stops interest on that amount but is not required for jurisdiction.
Warn him. If the petition is late or dismissed, the full deficiency plus the §6662 penalty becomes assessable and the IRS can levy without further Tax Court review.