IRS Notice CP3219A - Notice of Deficiency

IRS Notice CP3219A, also known as a "90-day letter," is a statutory notice of deficiency that the IRS sends to taxpayers when it identifies proposed increase in tax. You will usually receive it when the IRS finds out any unreported income or a mismatch between the information on your tax returns and the information reported to them by employers and financial institutions or other third parties. Also, it arises when you don't respond to changes proposed by the IRS in a CP2000 notice.

The CP3219A IRS notice provides an option to resolve the proposed changes legally with the IRS or even challenge them in the U.S. Tax Court. NRIs might receive IRS CP3219A for reasons such as 1042-S reporting, U.S. investment income, treaty positions, or a change in their filing status or U.S. residency.

After receiving the notice, you must carefully review it and then act before the deadline mentioned on it. You cannot usually extend the applicable petition deadline if you wish to challenge the requested deficiency. If you have received an IRS notice CP3219A, keep reading further. In this blog, we will cover the reason behind receiving CP3219A for NRIs, information to check, how to respond to it, and much more.

What is IRS Notice CP3219A?

IRS sends CP3219A to inform you about proposed increase in tax based on the information that doesn't match what you reported on your filed tax return. It's neither a bill nor an audit notice; it's a notice of proposed changes in tax to which you can respond if you disagree.

For example, the information reported by an employer, bank, or other third parties may be compared by the IRS. Now, in case the IRS finds any mismatch that you haven't resolved yet, it may issue IRS Notice CP3219A. The notice will explain the tax change you need to make and also your rights to respond or petition the tax court.

Compared to other IRS correspondence, CP3219A is more important because it provides a legal opportunity to challenge the proposed changes before the IRS considers and finalizes the additional tax.

If you are an NRI who received this notice, you must not only focus on whether you owe additional tax. Instead, you must also identify the reason why the IRS made this adjustment and whether the information used for the calculation is as per your U.S. tax return. However, if you received IRS Notice CP3219A, don't assume it's due to a mismatch; there are other reasons you may have received it. That being said, let's look at other reasons why an NRI might receive CP3219A.

Why Would an NRI Receive CP3219A?

Generally, IRS Notice CP3219A arises from an unresolved mismatch identified in an already-filed tax return. When the IRS verifies, it compares the information reported by the taxpayer with the data received from third parties. However, apart from a mismatch, the other common issues for NRIs to receive an IRS CP3219A notice include the following:

Failed to Resolve an Earlier CP2000 Notice

The IRS sends a CP2000 notice to inform you about a mismatch in the income or payment information reported on your return. If you fail to respond to this notice, or if the information you provided doesn't resolve the mismatch, you will receive CP3219A.

According to the IRS, CP3219A is usually followed by an earlier notice that was not resolved, usually CP2000.

Form 1042-S Does Not Match Your Return

Form 1042-S is used to report U.S. source income paid to a nonresident alien and related withholding. This form can be particularly important for NRIs. So, the IRS may identify the difference when the amount reflected on your Form 1042-S doesn't match the amount reported on your return.

It may happen due to a reporting error, a corrected form, duplicate reporting, or a mismatch in how you reported an amount on your tax return.

Not Reflecting a Treaty Position Correctly

If you claimed a tax benefit under an eligible U.S. income tax treaty, you need to disclose the specific position on your tax return. Now, if you don't explain it well or provide unclear information, the IRS may either deny or question the resulting tax calculation.

However, it's not necessarily the case that every CP3219A received for a treaty-related issue is simply a misunderstanding on the IRS's part. In simple terms, before you respond, you must review the actual treaty provision, the return position, and the supporting documentation to determine whether the mistake is on your side.

Change in U.S. Residency or Filing Status

Once an NRI faces a change in residency or filing status during a tax year, their tax position in the U.S. becomes more complicated.

This is because you may then have to identify whether Form 1040 or Form 1040-NR applies to you for the year and whether the information you reported on the return reflects your status correctly. It means you will have to be more careful about complying with your new obligations.

Moreover, if your return doesn't accurately reflect your situation, ensure you review the adjustments proposed on CP3219A carefully before agreeing to them.

So, as an NRI, you need to stay aware of these reasons, as well as the fact that an IRS Notice CP3219A is not always received for a mismatch. Now, once you receive the notice, review a few key pieces of information before responding. That being said, next we will look at the information you need to check on IRS Notice CP3219A.

What Information Should NRIs Check on CP3219A?

Before you respond to the notice, you must review it against your own tax records. Instead of focusing only on the tax amount proposed by the IRS, try to find out the specific information that led to the adjustment. Below is some of the important information you must check on the CP3219A notice:

Original Tax Return

It's the most important thing you need to do: compare the calculations reflected on CP3219A with your actual filed tax return. Do not simply trust the IRS proposed calculations; instead, verify the relevant income, credits, deductions, withholding, and other tax positions.

IRS Proposed Adjustments

The IRS will provide an explanation of how it calculated the proposed tax adjustment, so ensure you read it carefully. Before you decide to agree, submit additional documents, or file a tax court petition, you should understand the specific adjustment.

Tax Year

Ensure that the CP3219A notice you received involves information for the correct tax year. You can do this by comparing the year listed on the notice with the year on your filed U.S. tax return and supporting tax records. 

Reported Income

Check the income items identified by the IRS and compare them with the amounts reported on your return. Ensure you particularly pay attention to income from:

• U.S. employers
• Brokerage accounts
• Banks and financial institutions
• Dividends and interest payments
• Other U.S. payers

Form W-2

In case employment income is included in the proposed adjustments, compare the IRS information with your Form W-2. Check the wages, federal income tax withheld, and other relevant amounts against the figures on your filed tax return. 

Form 1099

Compare the proposed adjustment with Form 1099 if the notice involves interest, dividends, brokerage transactions, or other reportable payments. Check if you reported the form correctly and whether you have already included the same income on your return. 

Form 1042-S

NRIs must review any Form 1042-S related to the proposed adjustment. Compare the income and withholding reflected on the form with your brokerage statements, payer records, and original tax return.

If you find an error in the payer's information, contact them and request a corrected information document or other supporting statement. According to the IRS, you must contact the business or person who reported the wrong information and submit the supporting documentation to the IRS.

Form 5564

Ensure you review Form 5564 carefully before signing (if included with your CP3219A). Since you cannot necessarily challenge all items in tax court, it's clearly stated by the IRS that the amount reflected on Form 5564 may not match an amount shown on a previous notice.

Notice Date and Tax Court Deadline

Check the date on the CP3219A and the last date to file a tax court petition. Generally, you have 90 days to file a petition with the tax court or 150 days if the notice is addressed to a person outside the United States. This is one of the most important dates on the entire notice for an NRI.

Make sure to review all this information carefully and then decide whether you agree or disagree with the proposed adjustments. After deciding, the main part is to respond to the notice. So, next, we will discuss how to respond to the IRS Notice CP3219A. 

How Should NRIs Respond to CP3219A?

Once you review the notice carefully, your response will depend on whether you agree to the changes. Here's how you need to respond to CP3219A based on whether you decide to agree or disagree with the proposed changes:

Agree With the Proposed Changes

After reviewing the notice, if you agree that the IRS's proposed changes are correct, follow the instructions as per the notice.

When the IRS sends CP3219A, it generally includes Form 5564, Notice of Deficiency Waiver. If you agree with the proposed changes, follow the instructions on the notice and return the completed Form 5564 as directed.

Importantly, don't assume that only submitting Form 5564 will help you settle the balance. Instead, if you are making a payment, you must follow the IRS payment instructions. Also, review the proposed income and tax calculation before you sign. Sign a waiver only when you have a clear understanding of what you are agreeing to.

Disagree With the Proposed Changes

Conversely, if you disagree with the proposed adjustments, you can submit additional information and documents to the IRS. This way, you can explain why you think the proposed changes are incorrect. Your response must clearly include the following information:

• The specific item you find incorrect
• The correct amount according to you
• Why the information provided by the IRS is wrong
• Documents to support your position

Confused? Let's make it easy with an example.

IRS Response Vs Tax Court Petition

There are two separate processes for responding to the IRS for CP3219A.

• Resolving Directly With the IRS

The first option is to resolve the proposed changes by submitting supporting information directly to the IRS. During the response period, the IRS will work with you to help resolve the issue.

However, don't assume that sending documents or communicating with the IRS will extend the deadline for filing a tax court petition. Hence, the strict 90-day deadline to file a petition will neither be paused nor extended.

• Filing a Tax Court Petition

If you wish to challenge the proposed changes in tax court, you must file a petition with the U.S. Tax Court by the applicable deadline and not the IRS. Generally, you have 90 days from the date on the notice or 150 days if the notice is addressed to a person outside the United States. 

Regardless of whether you choose to agree or disagree with the proposed adjustments, you must ensure you review everything carefully. Moving further, let's understand what Form 5564 is and when NRIs need to use it. 

What is Form 5564 and When Should NRIs Use it?

Form 5564, Notice of Deficiency Waiver, is usually provided with CP3219A. Once you sign and return Form 5564 as per the notice instructions, you basically agree to the proposed changes. By doing this, you also permit the IRS to proceed with verification rather than wait out the entire tax court petition period.

You need to use Form 5564 when you:

• Agree with the proposed changes.
• Understand the amount you are agreeing to.
• Are sure that the income and tax calculation are correct. 
• Carefully reviewed every important piece of information on CP3219A.
• Instead of challenging the proposed adjustment in tax court, you wish to resolve it.

If you choose to use Form 5564, you need to carefully review everything before signing it.

Avoid Signing Form 5564 Before Reviewing the Proposed Adjustment

If you are completing Form 5564 only because you want to get rid of the notice, don't do that. It's very important for you to use this form carefully. 

Before you agree to the proposed changes, you must review the issue and submit the supporting documents. The issues can be an incorrect income item, a duplicated third-party form, or the IRS misunderstanding your tax position. 

Also, the IRS states that the amount reflected on Form 5564 may not match an amount on an earlier notice. Hence, ensure you compare the form with the CP3219A notice and resulting tax calculation before you sign.

Moreover, you need to submit this form within the strict 90-day deadline or 150 days for addresses outside the US. That being said, next, let's understand the CP3219A tax court deadline.

What is the CP3219A Tax Court Deadline?

You generally need to file a petition at the tax court for CP3219A within 90 days from the date the notice was mailed. For addresses outside the United States, this deadline is 150 days. You can check the last date for filing the petition on the notice. Let's look at a few points you must keep in mind. 

The Deadline is Based on the Notice Date

Don't count the 90 days from the day you open the letter. The tax court states that the statutory period is usually counted from the date the IRS mailed the notice of deficiency. To make it easier, you can simply check the last date for filing on the notice itself. 

NRIs May Have the 150-Day Period

As discussed above, CP3219A sent to addresses outside the United States will get 150 days to respond. However, don't assume that just because you live abroad, you will automatically get the 150-day period. Make sure to check how the notice was addressed and the deadline it mentions. 

Sending Documents to the IRS Doesn't Extend the Deadline

Although you may keep communicating with the IRS during the response period, it has nothing to do with the deadline to file a tax court petition. It means this will neither pause nor extend the deadline for filing a petition. 

According to the IRS, you can't simply extend the tax court petition deadline by submitting additional information to resolve the issue. 

A Late Tax Court Petition Can Lose Your Case

The U.S. Tax Court clearly mentions that it cannot simply extend the deadline to file a petition on account of a notice of deficiency. You must not wait until the final day to identify whether you need to file or how to file if you wish to challenge CP3219A. 

Now, you must be thinking, what if I simply ignore the notice? If you do that, along with additional tax, you will also attract applicable penalties and interest. Let's discuss this in detail. 

What Happens if an NRI Ignores CP3219A?

If you skip both filing a tax court petition and responding to the notice, the IRS may assess the proposed changes. Then you will receive a bill for the additional tax, along with applicable penalties and interest. 

Even after assessing the additional tax, if the balance remains unpaid, your matter may enter the IRS collection process. Additionally, your balance might increase due to growing interest and applicable penalties on unpaid amounts. If the proposed tax is ultimately assessed and remains unpaid, interest will continue to accrue and applicable penalties may apply. If you disagree with the proposed adjustment, review your response and Tax Court options before deciding how to proceed.

If you miss the tax court petition deadline, you will also lose the option to use the normal deficiency proceeding through which you can challenge the proposed tax in tax court.

Now, to recall everything and understand everything better, let's look at an example. 

To Conclude

IRS Notice CP3219A is a formal notice of deficiency that is usually received due to an unresolved mismatch between information reported on your U.S. tax return and information provided to the IRS by third parties. 

As an NRI, it's important for you to identify the reason why the adjustment was made. Also, before you respond, you must review the tax year, Form W-2, Form 1099, Form 1042-S, the original tax return, the IRS calculation, and the tax court deadline. Although the most common reason for receiving CP3219A is a mismatch, there can be other reasons as well. Hence, it's important to identify the correct reason and respond accordingly. 

Moreover, if you are unsure how to respond or need help, contact an expert at Savetaxs. We have a team of experts who can help review the CP3219A, determine the specific proposed adjustment, compare the information, and gather the supporting documentation. Connect with us right away and submit a response for your CP3219A before the deadline.