The Basics of IRS Assessments

An assessment results when the liability of a taxpayer is recorded in the office of the Secretary of the Treasury.  The assessment establishes the right of the IRS to collect the tax.  No lien or levy can be made without an assessment.  Assessments are authorized by the Internal Code.

Procedure for Assessment

The assessment officer signs a summary record of assessment which shows the following:

1. Name
2. Address
3. Identification number
4. Character of liability
5. Taxable period
6. Amount of liability

Effective Date of Assessment (23C Date)

The effective date of the assessment is the date Form 23C, Assessment Certificate, is signed by the assessment officer.

Types of Assessments

There are various types of assessments:

1. Summary – A summary assessment is when the amount shown on the tax return is assessed.
   • A deficiency assessment may not be summarily made for income, estate, gift and some excise taxes.  The IRS must issue the taxpayer a statutory notice of deficiency.
   • An assessment may be summarily made for:

(1)      Mathematical or clerical error

(2)      Tentative carryback adjustments

(3)      Amount paid

2. Deficiency – The deficiency is the amount determined by examination under the Internal Revenue Code.  The difference between the correct tax liability and that reported by the taxpayer on the return is assessed.
3. Jeopardy – A jeopardy assessment is made if the IRS determines that collection of the tax will be jeopardized by delay.  In this situation, the IRS may make an immediate assessment.
   • Before return is due by termination of tax year
   • After return is due
   • Tax Court review is still available
4. Bankruptcy – Taxpayer receives a notice of deficiency.  The case may be tried in Bankruptcy Court or Tax Court.

Time for Making Assessment

1. Three years from the date (whichever is later) on which the return was due or filed.
2. Exceptions to the three-year rule:
   • No return filed — No statute of limitations.  Once a late return is filed, then the three-year statute of limitations begins.  Even if the initial failure to file was fraudulent and a later return is subsequently filed, the statute of limitations begins three years from the date of filing.
   • Fraudulent return — Assessment may be made at any time if the IRS can prove a fraudulent return.  An amended nonfraudulent return does not remedy an initially filed fraudulent return, nor does it start the three-year statute of limitations.
   • Substantial omission — The IRS has six years to make an assessment.  A substantial amount omitted is defined as an amount that (1) should be reported and (2) is more than 25 percent of the gross income reported.

Statutory Notice of Deficiency (90-Day Letter)

Prior to making assessments for income, estate and gift taxes, the IRS must send a Statutory Notice of Deficiency (also known as a 90-day letter) stating the amount of the deficiency and setting forth the computation of deficiency. The letter must be sent by certified or registered mail to the last known address of the taxpayer.  The last known address is generally the address shown on the last return filed.  If the statutory notice is mailed to the last known address, notice is valid even though not actually received by the taxpayer.  The statutory notice establishes Tax Court jurisdiction.  The statutory notice tolls the time for making an assessment for the remaining on the statute of limitations at the time the statutory notice of deficiency is sent, plus the 90-day period the taxpayer must file a Tax Court Petition and for 60 days after the time for filing the petition expires.

 

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