Deficiency Assessment Law and Legal Definition

Deficiency assessment is an assessment of an additional income tax to cover a deficiency in income revealed upon an audit of the return made by the taxpayer. It is the amount that a taxpayer owes in back taxes as determined by the IRS and, if one was requested, an appeal. For example, if one owed $50,000 in taxes for 2009 but only paid $40,000, the IRS would make an assessment of deficiency for $10,000, plus interest and penalties.

The following is an example of a state statute on deficiency assessment:

Mont. Code Anno., § 15-36-314. “If the department determines that the amount of the tax due is greater than the amount disclosed by a return, it should mail to the taxpayer a notice of the additional tax proposed to be assessed. The notice must contain a statement that if payment is not made, a warrant for distraint may be filed. The taxpayer may seek review of the determination. Further, a penalty and interest must be added to a deficiency assessment.”