Notice of Deficiency for Uber Driver: How to Handle Proposed $15K Tax Increase from IRS?
Hey folks, Need some advice from anyone who's dealt with this nightmare before. I'm in Illinois, if that makes any difference for tax rules. I've been using FreeTaxUSA for filing my taxes for years with zero problems with the IRS. But about two months ago, I got this scary letter saying I owe roughly $19K in taxes from 2021. For context, up until September 2020, I only had my regular W-2 job. Then I started driving for Lyft on weekends and evenings for extra cash. This letter is claiming over $15K in "tax deficiency" for 2021 plus like $3.2K in "substantial tax understatement penalty." I'm freaking out! I double-checked everything I filed back then and I definitely included both my W-2 and all the Lyft income statements. I'm completely confused about why they think I owe anything, especially this much! I remember paying taxes that year (never got refunds - always had to pay) and have continued to pay since starting with Lyft. Would love to hear if anyone's been through something similar and what you'd recommend. I already sent all my tax documents from 2021 back to the IRS as proof, but they just sent another letter demanding the same amount. I've got until 5/15/2024 to petition this thing.
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Philip Cowan
This is unfortunately common with gig work. The issue is likely that while you reported the income, you may not have correctly calculated your self-employment taxes (Social Security and Medicare) which are roughly 15.3% on your net profit from Lyft. Also, did you claim all eligible business expenses like mileage, portion of phone bill, etc.? A Notice of Deficiency is serious and you'll want to act quickly. You have two main options: 1) File a petition with the U.S. Tax Court within the deadline (this does NOT require an attorney), or 2) Request an audit reconsideration if you believe the assessment is incorrect. Before doing either, I suggest getting professional help to review your original return. Look for a CPA or Enrolled Agent who specializes in self-employment/gig work. They can identify exactly what went wrong and the best way to respond. The $19K amount suggests there might be significant issues with how the self-employment income was reported.
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Caesar Grant
•Would they still need to file a petition with Tax Court even if they're getting a tax pro to look at it? What if the deadline comes while they're still working with the accountant?
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Philip Cowan
•Yes, I would still recommend filing the petition with Tax Court before the deadline expires, even while working with a tax professional. Filing the petition preserves your rights and stops the IRS from assessing the tax while you work things out. If you solve the issue while the Tax Court case is pending, you can always withdraw your petition or settle with the IRS. But if you miss the petition deadline, you lose significant rights to challenge the assessment without first paying the full amount.
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Lena Schultz
I went through something similar after driving for Doordash. Found out the hard way that FreeTaxUSA wasn't calculating my self-employment taxes correctly because I didn't fill out the Schedule C properly. Try checking out https://taxr.ai - they specialize in analyzing returns for gig workers and can help identify exactly what went wrong with your filing. They scanned my IRS notice and original return, showed me exactly where I messed up, and gave me a clear plan for fixing it.
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Gemma Andrews
•Did they actually help you resolve the issue with the IRS or just tell you what was wrong? I'm in a similar situation with Instacart income and wondering if it's worth it.
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Pedro Sawyer
•This sounds like an ad. How much does this service cost? And do they actually handle the communication with the IRS for you or just point out problems?
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Lena Schultz
•They helped identify exactly what was wrong which made resolving it much easier. I had incorrectly reported my expenses and they showed me exactly where I went wrong, what forms needed correction, and how to properly document everything. The service doesn't handle IRS communications directly - you'll still need to submit everything yourself or hire a tax pro for that part. They're more like a diagnostic tool that helps you understand exactly what happened so you can fix it. They can generate the corrected forms though which was super helpful for me.
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Pedro Sawyer
Just wanted to follow up - I checked out taxr.ai after my skeptical comment and I'm actually really impressed. They found that I had completely missed claiming my mileage deduction for Instacart (over 8,000 miles!) and had reported my income on the wrong form. The analysis showed I was paying almost $3K more than I should have. Their breakdown made it super clear what I needed to fix and they even helped draft a response letter to the IRS. Definitely worth it for my situation with gig work!
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Mae Bennett
After dealing with a similar nightmare ($9k deficiency for my DoorDash income), I spent WEEKS trying to get through to someone at the IRS. Kept getting disconnected or waiting for hours. Finally tried https://claimyr.com and their service actually got me a callback from the IRS in under 2 hours! You can see how it works here: https://youtu.be/_kiP6q8DX5c - saved me so much frustration. The IRS agent I spoke with helped me understand exactly what documentation I needed to submit and how to request a reconsideration.
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Beatrice Marshall
•How does this actually work? Seems sketchy that they can somehow get the IRS to call you when nobody else can get through.
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Melina Haruko
•Yeah right. The IRS doesn't prioritize calls from random services. This sounds like a complete scam to get desperate people's money. The IRS doesn't care who you are, you wait in line like everyone else.
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Mae Bennett
•It's not about "prioritizing" calls - they use an automated system that navigates the IRS phone tree and holds your place in line so you don't have to. When an agent is about to pick up, you get a call connecting you to that agent. It's basically just automated hold technology. The service doesn't claim to have special access to the IRS or get you ahead in line. They just save you from having to physically wait on hold for hours. The IRS has no idea you're using the service - to them it's just a normal call that finally reached an agent.
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Melina Haruko
Well I have to admit I was wrong. After posting my skeptical comment I was desperate enough to try Claimyr since my petition deadline is coming up next week. It actually worked exactly as described - I got a call back from an IRS agent in about 90 minutes. The agent was able to pull up my account, explain exactly what triggered the deficiency (I had reported my rideshare income but completely missed the self-employment tax section), and helped me request a reconsideration with the right documentation. Saved me from having to file a Tax Court petition!
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Dallas Villalobos
Did you track your mileage while driving for Lyft? That's usually the biggest deduction for rideshare drivers. If you didn't claim your mileage (at 56 cents per mile in 2021), the IRS would calculate taxes on your full earnings without expenses. That alone could explain a huge tax difference.
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Kara Yoshida
•I did track some miles but honestly not consistently. I remember putting in something like 4,000 miles but I was driving a lot more than that. Probably closer to 18,000 miles for Lyft that year. I think you're right that this might be a big part of the problem.
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Dallas Villalobos
•That would definitely explain a large portion of the deficiency! At 56 cents per mile in 2021, the difference between claiming 4,000 miles versus 18,000 miles is about $7,840 in additional deductions. Depending on your tax bracket, that alone could account for $1,700-$2,700 in tax differences.
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Reina Salazar
Make sure you're also checking if you filed Schedule SE for self-employment tax. Many tax software users miss this completely. The SE tax is 15.3% ON TOP OF regular income tax. So even if you correctly reported the Lyft income on Schedule C, if you didn't complete Schedule SE, the IRS would come after you for the missing SE tax plus penalties and interest.
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Saanvi Krishnaswami
•This happened to me! I reported all my Uber income but completely missed the Schedule SE part. Ended up with a $7k notice a year later. I recommend getting a tax transcript from the IRS website to see exactly what they have on file versus what you submitted.
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