Notice of Deficiency in Substitute for Return Setting

0 Flares 0 Flares ×

Earlier this week, a Tax Court Order to Show Cause in the case of Edward and Cherilyn Jackson v Commissioner raised the question as to whether a notice the IRS has been issuing to taxpayers who have failed to file a return constitutes a statutory notice of deficiency. The Order, which can be found here, arose because the IRS had filed a motion to dismiss for lack of jurisdiction with respect to Cherilyn, Edward’s wife, and to change the caption to reflect only Edward’s name. In its motion, the IRS attached IRS Notice 3219N (or most of it anyway; it left out a page), which was only addressed to Edward. I suspect IRS was surprised that in response to its motion, Judge Armen did not rule but rather raised broad concerns about the IRS’s form for issuing statutory notices to taxpayers who have not filed tax returns. What makes the Order unusual is that Judge Armen ordered the IRS to explain how the Notice in its generic form came into existence, and whether it was reviewed by Chief Counsel. That request reflects deep unease with the way IRS communicates with nonfiling taxpayers.

I’ll explain a bit more and give some context.


Brief Context

When taxpayers fail to file a return and the IRS receives third party income information, IRS often will contact a taxpayer asking the taxpayer to prepare a return. It is fairly common that the taxpayer not respond, and the IRS will prepare a substitute for return (SFR) based on information it has in its possession. IRS generally cannot assess tax based upon the liability in the SFR until it issues a statutory notice of deficiency giving the taxpayer the right to petition the Tax Court (unless the taxpayer consented to the assessment or there was jeopardy, for example). If the taxpayer does not file a petition, the IRS can assess the tax as reflected in the statutory notice, as well as interest and certain applicable penalties.

As Keith’s post what is a return points out, most SFRs arise pursuant to Section 6020(b), rather than 6020(a), which requires an exchange of information from the taxpayer to the IRS:

IRC 6020(b) describes situations in which the taxpayer submits no return, provides no information or fraudulent information, refuses to sign a return after the IRS prepares it requiring the IRS to send a notice of deficiency based on the best information it can collect independently.  Usually, these returns are based upon the wage and income transcripts reported to the IRS by third parties but occasionally they result from independent fact gathering.  Because the taxpayer has not consented, the IRS does not make elections for the taxpayer such as joint return filing status or itemized deductions, etc., that might reduce the tax liability.  Usually, these returns overstate the liability because the IRS does not (cannot) make elections that might reduce the taxes; however, these returns might understate the liability because the IRS is unaware of income sources not reported to it by third parties.

In Jackson, the IRS sent its SFR under Section 6020(b) to Edward in a 3219N Notice.  Unlike many taxpayers who fail to file a return, apparently Edward and Cherilyn filed a petition in response to the 3219N, even though it was issued only in Edward’s name.  

I did not see the 3219 that IRS sent to Edward, but the IRS website entitled Understanding Your CP3219N Notice describes that notice and has a redacted sample. The sample on the IRS website is hard to read, but Judge Armen’s displeasure with the 3219 is attributable to the sloppy language in the Notice as well as the small font typeface of the term “Notice of Deficiency” relative to the Notice’s command to file a “2010 Form 1040 to avoid our assessment.” (Judge Armen said the phrase notice of deficiency “is dwarfed” by the command to file which “appears in bold and prominent typeface that dominates the IRS Notice 3219N.”)

The Order reflects further its displeasure at the Notice:

IRS Notice 3219N also announces how “We’ve calculated the assessment”, and it cautions that “If all your income is not listed here, you must file a tax return. You can’t agree to the amount due.”

IRS Notice 3219N appears designed to cajole (one might say, pressure) a taxpayer into filing a return upon threat of assessment. And, remarkably, IRS Notice 3219N admonishes the taxpayer that he or she may not acquiesce in the assessment “[i]f all your income is not listed here” but that the taxpayer “must file a tax return”, apparently upon pain of some unspecified penalty.

Also noteworthy is the fact that neither the Commissioner nor an authorized delegate purports to “determine” any “deficiency” in IRS Notice 3219N. Indeed, IRS Notice 3219N does not disclose the name (much less the signature) of the IRS official or employee who caused the notice to be issued and only reveals the issuing office as an IRS post office box in Fresno, California. Further, there is no “determination” of a “deficiency”, but only the proclamation that “We have determined that you owe taxes”.  

The Order asks “[i]f IRS Notice 3219N is not a notice of deficiency, might it be a collection notice?”

It asks that last question because the notice “boldly announces to the taxpayer both the amount of “Tax you owe” and the net “Amount due” after factoring in “Payments you made”, multiple penalties, and “Interest charges”. Presumably, however, IRS Notice 3219N is not a notice of determination, because (for example) there is nothing within the four corners of the notice to suggest that it was issued by the IRS Office of Appeals.”

What is Required to be in a Notice of Deficiency?

What to make of the IRS’s 3219? Our colleague over at the blog Federal Tax Procedure, Jack Townsend, has a good post from last summer discussing the statutory requirements for 90-day letters:

As Jack stated, the four requirements that are statutorily required are:

  1. The date to file a petition for redetermination in the U.S. Tax Court
  2. Notice of Taxpayer Advocate’s contact information
  3. Notice sent to a taxpayer’s last known address
  4. Explanation of basis for deficiency

I described the first two requirements in a post from this past summer addressing what happens if the IRS whiffs on including the filing date or TAS contact info (summary: not much, though I argue that in some cases if a taxpayer can show prejudice maybe the omission should trigger a notice’s invalidity).  There is much law on last known address. I will not get into that here.  For those interested, we recently rewrote the content on last known address in Saltzman and Book—it can be found in revised Chapter 10.03[d], coming out next month. The Notice 3219 presumably satisfies the first three of the requirements; at least the sample on the IRS website suggests as much on the filing date and TAS info; and nothing in the Order is suggestive of a last known address problem.

As to the fourth requirement, Section 7522 requires that the IRS adequately explain the basis for the deficiency; failure to do so does not, however, invalidate the notice. As we describe in revised Saltzman 10.3[b], “Scar v. Commissioner provides that the notice must contain sufficiently accurate information to establish that the Service has made a “determination” about the taxpayer’s return. Where the notice of deficiency reveals on its face that the Service has failed to make a determination about the return of the named taxpayer, the notice has been held to be a “naked assessment, and thus invalid.” (citations omitted). Yet, as Jack Townsend has described this past summer, Scar is “an outlier, with its analysis and holding rarely invalidating a notice of deficiency.” (A good example describing its limited application is in Cross v Comm’r, a 2012 Tax Court case which Jack nicely describes in a separate post).

The Order questions whether there is a determination in the Notice 3219. Yet, while there is lots of sloppy language (e.g., stating “we’ve calculated the assessment” when no assessment has been made, and the assessment is a term that refers to the recording of the liability), and inadequate emphasis on the notice functioning as a deficiency notice (e.g., small font-size and lack of prominence in relation to other content), there presumably is a connection between Edward’s items of income that he failed to report and the amount that the notice says is due. The generic Notice states that it “has determined that there is a deficiency (increase) in your [tax year] income tax. “ (this language is from the page 2 sample on the IRS web site).

In the context of a notice of deficiency generated from a failure to file a tax return, it follows that the IRS has not examined the tax return to generate the notice. IRS’s reliance on third party income information to generate the Notice 3219 like that in Jackson is likely sufficient connection to the taxpayer for a court to conclude that a determination has been made. Yet, the Order rightfully reflects an unease with the possible lack of consequences with the IRS’ sloppy and potentially misleading information in the notice itself.

What the Future Holds

I am not sure what we will learn from the IRS response (which is due December 20). In addition to asking the IRS about how the Notice 3219 came into existence, the Order asks parties to show in writing why the Court should not dismiss the case for want of a notice of deficiency. I suspect IRS will point to the fairly liberal statutory requirements and case law gloss to justify treating this notice as a valid stat notice. Its explanation of the origins of the 3219 will also likely be interesting for tax procedure fans.

Going forward, the IRS should perhaps separate the SFR from the issuance of the notice of deficiency, and, at a minimum, fix the misleading aspects of the 3219. That Edward apparently filed a petition (though mistakenly with Cherilyn) suggests no prejudice in terms of protecting the right to pre-payment court review, though I am sure that other taxpayers are mightily confused by the letter and do not understand where they are in the process. Good tax administration requires better communication, and even if there is no remedy for bad notices, that should not insulate IRS from taking corrective measures. If it does not, perhaps Congress should step in even if the court’s hands are tied.

In the meantime, as Keith reminds me and as his post yesterday on what is a return for bankruptcy purposes highlights, to preserve possible discharge, anyone receiving one of these notices should immediately file the return or immediately start working with the IRS to provide information and consent to a 6020(a) assessment to avoid the problems he describes.  Allowing this to go forward to assessment sets the taxpayer up for the inability to discharge the debt incurred.


Avatar photo About Leslie Book

Professor Book is a Professor of Law at the Villanova University Charles Widger School of Law.


  1. The IRS actually provides the full sample Notice online at, which can be read easily.

  2. Carl Smith says

    A particularly obnoxious part of this form that has not been mentioned is the language of the consent, which, unlike the usual consent, does not indicate that the taxpayer may file a refund claim as to the amounts in the consent. The consent simply says the taxpayer may file a return. While an original return would qualify as a refund claim if made after the taxes were paid, it would not do so with respect to penalties — such as the late-filing and late-payment penalties. There is no warning that a taxpayer may file a Form 843 refund claim with respect to those penalties.

  3. Excellent point Carl. Further reason why this notice will confuse many taxpayers.

  4. Carl Smith says

    After an e-mail exchange I had with Nina Olson today — following up one from a few days ago — I can report that Nina says that as a result of Judge Armen’s order being brought to her attention, the IRS has stopped the issuance of Notice 3219-N. She says that the notice had been reviewed by Counsel and (non-attorneys at) TAS, but the TAS employees thought it was a collection notice. Nina and her attorney staff never reviewed it — before now. After just reviewing it, they thought it inappropriate.

  5. Roger D Martin says

    Date: Dec 28, 2014
    Although this story is over a year old now, I note that the Internal Revenue Service now has a completely re-furbished Form 3219N which, unlike the incoherent version described above, actually does appear to be a statutory notice of deficiency conforming to the requirements of the law — and without the erroneous uses of terms of art such as “assessment” and “deficiency” found in the former version. Curiously, however, the IRS has not removed the example of the bizarre former version from its website.
    –Roger D. Martin, JD, CPA
    Houston, TX

  6. George Smith says

    There are quite a few things wrong with the system of records in the IRS, if the taxpayer does not file a return. Although, the IRS or delegate may have authority to file a SFR, the service generally does not do that, they file “dummy” returns which normally show no amount due and fully paid and are contrary to law. The APA (5 U.S.C. 552a(e)(6)) requires the agencies records stand timely and accurate yet they file forms (dummy forms) they know to be incorrect into the agencies records so that an audit can commence. They then correct the document they on purpose filed that was incorrect, sounds fishy, no?

    This was brought before the TC in Thompson v. Commission (011630-03), don’t worry the TC Clerk is in no hurry to show this win, they hide the verbally ruling in a box in the back of the warehouse, it will take you months to get it.

    The problem starts at the beginning as the Commissioner has never made a determination as to the litigants taxable status and send the required notice pursuant to 26 USC 6001, ” Whenever in the judgment of the Secretary it is necessary, he may require any person, by notice served upon such person or by regulations, to make such returns, render such statements, or keep such records, as the Secretary deems sufficient to show whether or not such person is liable for tax under this title. ”

    The IRS does not make any taxable status determinations, they are assumed by all… if that does not get you thinking… I don’t know what will. 🙂 Not sure why anyone would go by the agencies records if they are known to be incorrect, the records themselves are evidence that they are incorrect on their face.

    Happy tax day by the way.

  7. George Smith says

    I made one mistake, the IRS had no statutory ability to make SFR under law, there is only 6020(b) which is a legally executed return. So, if you client never filed a return, the IRS will file a “dummy” return and label it SFR 150 on the IMF, go FOIA that document with the document number. 🙂

    Then you go look up the definition of “deficiency”, how can there be a valid notice of deficiency be sent absent a “deficiency”?

  8. Dave Kwiecinski says

    Spouse received a 3219N because 2012 isn’t yet filed. Taxpayers regularly file joint return, but of course, only spouse’s income is listed. 3219N still encourages taxpayer to file return (large section headed “You can still file your return” and page one of Notice clearly states “We will still accept your return, and filing your return may reduce the amount due.”). Section headed “You can still file your return” emphasizes that if return is timely filed with IRS but petition is not filed with Tax Court, taxpayer will not be able to contest tax liability or penalties in Tax Court.

    Still quite confusing and contradictory language. And no identification of who to contact. Merely a “Your Caller ID” number and the toll-free number to call.


Comment Policy: While we all have years of experience as practitioners and attorneys, and while Keith and Les have taught for many years, we think our work is better when we generate input from others. That is one of the reasons we solicit guest posts (and also because of the time it takes to write what we think are high quality posts). Involvement from others makes our site better. That is why we have kept our site open to comments.

If you want to make a public comment, you must identify yourself (using your first and last name) and register by including your email. If you do not, we will remove your comment. In a comment, if you disagree with or intend to criticize someone (such as the poster, another commenter, a party or counsel in a case), you must do so in a respectful manner. We reserve the right to delete comments. If your comment is obnoxious, mean-spirited or violates our sense of decency we will remove the comment. While you have the right to say what you want, you do not have the right to say what you want on our blog.

Speak Your Mind