How to Handle an IRS Notice of Deficiency (90-Day Letter)

Stage 1: Triage & Containment — Your First 72-Hour Action Plan

This is the moment to shift from emotional reaction to professional crisis management. The goal of this first stage is not to solve the entire tax dispute, but to contain the problem, establish control, and create the space to make strategic decisions. Before you do anything else, execute this immediate action plan.

• Execute the "Do Not Panic" Protocol. The instant you open the letter, your executive mindset must take over. First, take a pen and write the date you received the notice directly on the top of the letter. This is a small but crucial step for your records. Next, scan the first page for your response deadline—it will be 90 days from the date the letter was sent. Do not, under any circumstances, immediately call the number on the form. Take a breath. This is a manageable business challenge, not a personal indictment.
• Decode the Proposal, Not the Bill. It is critical to understand that an IRS Notice of Deficiency (often a Form CP3219A) is not a final bill. It is a proposal by the IRS to adjust your tax liability based on information they have. Your first job is to become an analyst. Pinpoint two things with precision: the exact tax year in question and the specific reasons for the proposed change. The notice will clearly state the source of the discrepancy, such as "unreported income from Form 1099-NEC from Client X," or "disallowed business expense for home office." This is your starting point for investigation.
• Assemble Your "War Room" File. Overwhelm is the enemy of clarity. To focus your efforts and prepare for the next stage, create a single, dedicated file (digital or physical) containing only three items:
  1. The Notice of Deficiency itself.
  2. A complete copy of your tax return for the year in question.
  3. The specific documents mentioned in the notice, such as the 1099 you overlooked or the receipts for the disallowed deductions. Nothing else matters at this moment. This focused file is now your single source of truth for this issue.
• Confirm Your 150-Day Expat Deadline. For a Global Professional, this is a vital piece of leverage. If the notice was mailed to your address outside of the United States, your response window is automatically extended from 90 to 150 days. This is a significant strategic advantage that gives you more time to prepare a thorough response. Confirm the address on the notice, find the exact deadline date printed on the letter, and immediately put it in your calendar with multiple, unmissable reminders. This deadline is your ticket to petition the U.S. Tax Court, and you cannot afford to miss it.

Stage 2: Root Cause Analysis — From Triage to Strategy

With the immediate threat contained and your critical documents in hand, it's time to shift from crisis manager to lead investigator. The goal now is a clear-eyed root cause analysis. Answering why this happened isn’t about assigning blame; it’s about gathering the intelligence needed to form a winning strategy and ensuring this never disrupts your life again.

• Trace the Data Mismatch to Its Source. The overwhelming majority of these notices are not personal attacks—they are automated system outputs flagging a data conflict. The IRS computer system is designed to do one thing exceptionally well: compare the income numbers on your tax return to the numbers on all the W-2s and 1099s filed under your Taxpayer Identification Number. When it finds a discrepancy, it automatically generates a letter. Your first task is to follow this data trail. Was it a 1099-NEC from a new client that you simply forgot to include? A data entry error where you transposed a few numbers? You must pinpoint the exact source of the error cited in the notice.

• Diagnose Common "Global Professional" Triggers. Your business model carries specific complexities that are common triggers for IRS scrutiny. Look for these specific failure points common to expats and high-earning freelancers:

  • The FEIE Misfire: The Foreign Earned Income Exclusion (FEIE) is a powerful tool, but it's also unforgiving. To claim it under the "physical presence test," you must have been physically present in a foreign country or countries for at least 330 full days during any 12-month period. A miscalculation of a few days, perhaps due to unexpected travel back to the U.S., can lead the IRS to disallow the entire exclusion, resulting in a significant proposed tax liability.
  • The Foreign Income Blindspot: Many Global Professionals mistakenly assume that income from a non-U.S. client who doesn't issue a 1099 is invisible to the IRS. This is a dangerous assumption. International agreements and digital banking transparency mean the IRS has more visibility into foreign accounts and payments than ever before.
  • The Aggressive Deduction: As the CEO of your business, you are entitled to deduct all ordinary and necessary business expenses. However, large deductions for travel, home office use, or equipment without meticulous, contemporaneous documentation can be easily challenged and disallowed.

• Use the "DIY vs. Delegate" Decision Matrix. This is your most critical decision point. Your ego has no place here; this is a pure risk-management calculation. Use this table to make a rational choice:

• How to Hire the Right Expert (Fast). If you must delegate, do not waste time with generic searches. You need a specialist. To vet a potential tax attorney or Enrolled Agent, ask them one killer question: "Have you successfully petitioned and resolved an IRS Notice of Deficiency before the U.S. Tax Court specifically related to [your precise issue, e.g., the Foreign Earned Income Exclusion]?" Their answer will instantly reveal whether they have the specific, battle-tested experience you need. General tax knowledge is not enough; you are hiring an expert for a very specific problem, and their track record with that exact problem is the only credential that matters.

Stage 3: The 'Never Again' System — Building a Resilient Operation

Once you've delegated the immediate fight to a specialist, your role as CEO must shift from crisis manager to system architect. Solving this one notice is a tactical victory, but the strategic goal is to ensure you never have to fight this battle again. This is the moment to transform your operational weaknesses into sources of strength, making compliance an automatic and stress-free byproduct of your professional life.

• Evolve From a Digital Shoebox to a Central Dashboard. The root cause of almost every automated notice is scattered data. The frantic, end-of-year scramble to find invoices, log payments from three different platforms, and decipher cryptic bank statements is a recipe for error. The permanent fix is establishing a single source of truth for your finances. Whether you use dedicated accounting software or another robust platform, the rule is absolute: every dollar of revenue and every business expense is logged and categorized as it happens. This isn’t a chore you leave for tax season; it is a core, real-time business function.
• Implement a "Compliance Pre-Flight Check." Before an airplane takes off, the pilot runs a mandatory, systematic check of all critical systems. You must adopt the same discipline for your tax filing. Before you or your accountant files your return, perform this non-negotiable review: Systematically download the annual reports from every single payment platform you use—Stripe, Deel, PayPal, Wise, and any client's proprietary portal. Place these totals side-by-side with the income recorded in your central dashboard. This methodical reconciliation process will catch the vast majority of data mismatches that trigger automated IRS notices.
• Make Your Deductions Bulletproof. A credit card statement is not a record; it is merely a clue. To make your deductions unassailable, you must prove not just the amount, but the business purpose of the expense. The only way to do this reliably is to capture and categorize a digital receipt the moment the transaction happens. Use a mobile app or your accounting software to snap a photo of the receipt, tag it to a client or project, and add a note about its business context. This creates a contemporaneous, audit-ready trail that replaces vague recollections with hard, timestamped evidence.
• Schedule Your Quarterly CEO Review. Finally, you must elevate compliance from a dreaded annual event to a calm, routine business process. Put a recurring one-hour meeting on your calendar for the first week of every new quarter. The sole attendee is you. During this CEO review, you will analyze your financial dashboard:
  • Review all income sources and compare them against your goals.
  • Examine expense categories to ensure they are under control.
  • Calculate your estimated tax liability and ensure you have set aside enough to pay it. This simple, repeated process transforms your relationship with your finances. It eliminates surprises and the anxiety that comes with them. You are no longer just a freelancer hoping for the best; you are the CEO of your enterprise, making informed, strategic decisions based on clear and current data.

From Panicked Taxpayer to Empowered CEO

The gut-punch feeling from opening an IRS envelope is real. It’s a moment that can send even the most successful professional into a spiral of anxiety. But this is the critical pivot point. Instead of viewing the notice as a personal failing, you must see it for what it is: a data point. It is a painful but powerful diagnostic tool.

This notice shines an unflinching light on the exact point of failure in your financial operating system. Unlike a vague sense of dread about "doing taxes wrong," this letter is specific. It points to a particular line item, a specific form, or a clear data mismatch. That specificity is its hidden value. This isn't an accusation against your character; it's a systems analysis of your business.

By treating this not as a personal crisis but as a business problem to be solved, you fundamentally change the outcome. The "personal crisis" mindset leads to fear, procrastination, and emotional decisions that strip you of your power. The "business problem" mindset, however, leads to calm, methodical action. You analyze the data, identify the root cause, gather the relevant documents, and make a rational decision to resolve it yourself or delegate to a professional. This is the CEO approach, and it’s how you retake control.

When you adopt this mindset, you do more than just fix a single tax dispute. You seize the opportunity to build the robust, resilient, and professional operation you wanted in the first place. You evolve from scattered records to a centralized financial system. You implement a pre-filing compliance check that makes future notices highly unlikely. These aren't just defensive tax chores; they are upgrades to your entire business infrastructure.

This is the ultimate reframe. The notice becomes the catalyst for building a Business-of-One that is truly independent—not just in the work you do, but in its operational excellence. You create a system that runs so smoothly that compliance becomes a natural byproduct, not a source of annual dread. This is what provides complete peace of mind, freeing your focus for the craft that drives your success, secure in the knowledge that your business is built to last.