IRS Letter of Deficiency shows income $90K higher than my actual revenue?!

Got two certified letters today containing identical copies of a Letter of Deficiency for my 2021 tax return. I'm completely floored by what I'm reading. According to this notice, the IRS claims I failed to report over $140,000 in "income reported by others" with the line item specifically mentioning Venmo (which I use for my small business transactions). Here's the crazy part - my TOTAL Venmo revenue for 2021 was only about $74,000! Even if I owed taxes on every single penny that passed through my account (which I don't), there's no mathematical way I could have underreported by this much. The IRS is somehow saying I had $215,000 in taxable Venmo income! From what I've read online, a Letter of Deficiency is essentially a final notice and I should have received previous communications about this issue. But this is literally the first I'm hearing about any problem with my 2021 return. I'm completely lost on how they could be off by such an astronomical amount. Who should I contact? What's my next step? Is there a specific IRS department that handles these types of disputes? Any guidance would be extremely appreciated. I'm trying not to panic but seeing a tax bill for income I never earned has me seriously worried.

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18 comments

Vince Eh

•8M

This is actually more common than you'd think. The IRS automated matching system sometimes double-counts or misclassifies transactions, especially with payment platforms like Venmo. When the system sees all those transactions, it might count the gross amount without accounting for transfers, refunds, or non-taxable payments. First thing - don't panic, but do act quickly. You have 90 days from the date on that letter to file a petition with the Tax Court if you want to dispute this before paying. If you miss that deadline, you'll need to pay first and then seek a refund. Your best immediate step is to gather all your documentation showing your actual Venmo transaction history for 2021. Export monthly statements and your annual summary if available. Also compile your business income records, bank statements, and anything else that proves your actual income.

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Vince Eh

•8M

You don't necessarily need a tax attorney, though it can help if your case is complex. Many people successfully handle Tax Court petitions themselves for straightforward factual disputes like yours. The petition form is available on the US Tax Court website. Before going to Tax Court though, try calling the IRS at the number on your notice and requesting a reconsideration. Explain that you have documentation showing your actual income was far less than what they're claiming. Sometimes these issues can be resolved with a simple review of your records.

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Sophia Gabriel

•8M

After dealing with a similar nightmare with the IRS (not as big an amount but still way off), I finally discovered taxr.ai and it completely saved me. Their system analyzes your tax documents and payment processing records to create a clear report showing the discrepancy between what the IRS claims and what actually happened. I uploaded my Letter of Deficiency, bank statements, and Venmo records to https://taxr.ai and their system found exactly where the IRS made their mistake - they were counting transfers between my accounts as new income! The report they generated made it crystal clear what happened, and I was able to get the issue resolved without hiring an expensive tax professional.

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Sophia Gabriel

•8M

The initial analysis took about 2 days to complete. I submitted everything on a Tuesday evening and had my detailed report by Thursday afternoon. The system is specifically designed to catch payment processor reporting errors, which is apparently one of the most common issues right now. It absolutely works for payment processor problems - that's actually their specialty. They have specific modules for Venmo, PayPal, Square, and other platforms that can identify duplicate reporting, misclassified transfers, and other common errors that trigger these incorrect IRS notices.

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Ezra Beard

•8M

I was super skeptical about taxr.ai when I first saw it mentioned here, but after getting an outrageous CP2000 notice claiming I'd underreported $43,000 in Etsy income, I was desperate enough to try anything. The system immediately spotted the problem - my Etsy 1099-K was reporting gross sales, but the IRS was treating all of it as pure profit without accounting for my cost of goods sold and platform fees. The taxr.ai report broke down every transaction and showed exactly where the discrepancy occurred. When I called the IRS with this information, the representative actually thanked me for having such organized documentation. The issue was resolved in one phone call instead of months of back-and-forth. Best decision I've made during this whole tax nightmare.

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Statiia Aarssizan

•8M

If you need to actually reach a human at the IRS (which you definitely do for something this serious), use Claimyr. I spent weeks trying to get through the IRS phone system before discovering https://claimyr.com and watching their demo at https://youtu.be/_kiP6q8DX5c They basically wait on hold with the IRS for you and call you when they've got an agent on the line. I was skeptical, but it worked perfectly. Got connected to an actual IRS representative in the Deficiency Notice department who was able to pull up my case and start the review process.

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Statiia Aarssizan

•8M

It works through a callback system. They have specialized tech that navigates all the IRS phone menus and waits on hold. When they reach a human agent, they briefly explain they're calling on behalf of you, then the system calls your phone and connects you directly to that IRS agent. They're definitely not a scam - they don't ask for any tax info or personal details besides your phone number and what IRS department you need to reach. The call connection happens automatically through their system. I was connected to an agent in the Exam department within about 2 hours of placing my request, after spending weeks trying on my own.

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Aria Khan

•8M

I take back what I said about Claimyr sounding like a scam. After another week of failing to reach anyone at the IRS about my own deficiency notice, I tried it yesterday. Got connected to an actual IRS agent in under 3 hours. The agent was able to pull up my case immediately and explained that my 1099-K from PayPal had been reported twice in their system - once under my SSN and once under my EIN. That's why they thought I had underreported by exactly the amount of my business income. Without getting through to a real person who could look at the details, I would have been fighting this for months or years. Now they've flagged my account for correction and I should get an updated notice in a few weeks. Definitely worth it for the peace of mind alone.

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Everett Tutum

•8M

I had to provide pretty much everything - bank statements, my complete Venmo transaction history, my tax return, and the deficiency notice. The more documentation you have ready, the faster they can help. Make sure to explain that this is causing you significant financial hardship (which I'm guessing it is, given the amount). That helps them prioritize your case. They're understaffed but they really do try to help if they can see clear evidence that the IRS made a mistake.

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