Every crypto dispute that does not settle with the examiner or the matching unit ends up at the same document: the statutory notice of deficiency. People call it the 90-day letter. It is the most important piece of paper the IRS will ever send you about a crypto adjustment, because it opens a door that closes on a fixed date.

Walk through that door on time and you can litigate the crypto tax and penalties in the United States Tax Court without paying them first. Miss it, and the IRS assesses the tax, and your remaining options are mostly about paying and then trying to get money back.

What the notice is

IRC 6212(a) authorizes the IRS, when it determines a deficiency in income tax, to send notice of the deficiency to the taxpayer by certified or registered mail. The same subsection requires the notice to tell you of your right to contact a local office of the Taxpayer Advocate, with its location and phone number.

Under IRC 6212(b)(1), a notice mailed to your last known address is sufficient. You do not have to actually read it for the clock to run. If you moved and the IRS mailed to your old address, the notice may still be valid. Keep your address current with the IRS, especially during a crypto exam.

Since 1998, the law also requires the IRS to include on each notice of deficiency the date it determines to be the last day to file a Tax Court petition. That requirement comes from section 3463(a) of the IRS Restructuring and Reform Act of 1998, Pub. L. 105-206.

The deadline

Publication 5 says you must file your Tax Court petition within the timeframe specified in the notice, “usually 90 days (or 150 days if the notice is addressed to a person outside the United States).” And it adds the part people miss: “The law sets the time to file your petition; the IRS or the U.S. Tax Court cannot change this time period. You have only the timeframe specified to petition the court, even if you continue to talk to IRS examiners or Appeals.”

Read that last sentence twice. Talking to the IRS does not stop the clock. An examiner who says “we can work this out” does not stop the clock. Only a timely petition protects the right to Tax Court review before payment.

Why Tax Court matters for crypto cases

Publication 5 describes the Tax Court as “generally a ‘prepayment’ forum,” meaning you can petition before paying the tax in dispute. The alternatives, the U.S. District Court and the Court of Federal Claims, generally require that you pay the full amount and file a refund claim first.

Crypto deficiencies can be large, especially when a matching notice treated gross proceeds as gain. Being able to litigate before paying is a real advantage.

If the amount in dispute is modest, IRC 7463 offers small tax case procedures. Where neither the deficiency in dispute nor any claimed overpayment exceeds $50,000 for any one taxable year, you may elect small case procedures with the court’s concurrence. Under IRC 7463(e), the amount in dispute includes penalties. Decisions in those cases cannot be appealed and are not precedent for other cases, under IRC 7463(b).

What happens after you petition

Publication 5 says that if you petition the Tax Court and did not previously appeal within the IRS, you will normally have an opportunity to attempt settlement with Appeals while the case is waiting for trial. Many crypto cases settle there.

A petition also limits the IRS. Under IRC 6212(c)(1), once you file a timely petition, the IRS generally cannot issue another deficiency notice for the same year, except in the case of fraud and certain other exceptions, including IRC 6214(a), which allows the IRS to assert a greater deficiency before the Tax Court.

That exception is a reason to file with care. If your crypto year has issues the examiner missed, a Tax Court case can bring them out. Know your whole file before you petition.

Burden of proof in a crypto deficiency case

Tax Court Rule 142(a) puts the burden of proof on the petitioner, the taxpayer, except as otherwise provided by statute or determined by the court, and except for new matter, increases in deficiency and affirmative defenses pleaded in the IRS’s answer, which are on the IRS.

IRC 7491(a) can shift the burden to the IRS on a factual issue if you introduce credible evidence, but only if you complied with substantiation requirements, maintained required records, and cooperated with reasonable IRS requests for information, documents, meetings and interviews. In a crypto case, that means your records and your exam conduct matter at trial.

On penalties, IRC 7491(c) puts the burden of production on the IRS for any individual’s penalty. On fraud, IRC 7454(a) and Rule 142(b) put the burden on the IRS, by clear and convincing evidence. See the crypto accuracy penalty and the civil fraud penalty.

Your first ten days with a notice

Here is what I do when a client walks in with one.

  • Find the date. Calendar the last day to petition printed on the notice. Calendar a target date at least two weeks earlier.
  • Read the adjustments. Identify each crypto item: proceeds treated as gain, disallowed basis, reclassified income, penalties.
  • Match them to your records. Which adjustments are simply wrong on the documents? Which are judgment calls?
  • Check the penalties. Was a 6662 or 6663 penalty asserted? For penalties that require it, was there timely written supervisory approval under IRC 6751(b)? See supervisory approval of crypto penalties.
  • Decide on the forum. Tax Court, regular or small case, versus paying and seeking a refund.
  • File the petition on time. Everything else can be refined after filing. The deadline cannot.

If the notice came from a CP2000

Many crypto deficiency notices never involve an examiner. A broker’s information return does not match your return, the matching program sends a CP2000, and if that is not resolved, a notice of deficiency follows. The notice is just as real as one that follows a field audit.

In those cases the dispute is often about basis the form did not show. See transferred-in crypto and zero-basis 1099-DA forms. Bring the basis evidence, and the case can shrink fast.

If you already missed the deadline

Then the Tax Court route for that notice is generally gone, and the IRS can assess. You still have options, but they are slower and usually require money up front.

Publication 5 explains that you can take a case to U.S. District Court or the Court of Federal Claims, generally only after you have fully paid the amount and timely filed a claim for refund with the IRS. If the IRS does not respond to a timely refund claim within six months, you can file suit. If the IRS disallows the claim, you generally have two years from the date of the notice of claim disallowance to sue, and Appeals’ consideration of the claim does not extend that period.

For crypto cases, that means a missed 90-day letter can turn a dispute you could have litigated for the cost of a filing fee into one you have to finance first. Do not let it happen twice: if more years are under exam, watch for the next notice.

The bottom line

Ninety days sounds like a lot. It is not, once you subtract time to find the notice, find a lawyer, and gather records. Treat the day the notice arrives as day one of a litigation deadline, because that is what it is.

If you want more background on how audits reach this point, the IRS audit guide on getirshelp.com covers the general process.