By Brittany Francis
On April 17, 2023, an attorney for Grammy-award winner, Beyoncé Knowles-Carter, filed a Tax Court Petition on the singer’s behalf disputing $2.7 Million in increased taxes and penalties. While the news captured media attention due to the mega superstar’s name, this current showdown with the IRS serves as a real-life case study on the Notice of Deficiency. A high-level look at Beyoncé’s Tax Court Petition filing will help clarify:
- The Notice of Deficiency
- Tax Court Petition Procedures
- Disputing Proposed Tax and Penalties
The Notice of Deficiency
IRC Code Section 6212(a) mandates the IRS issue taxpayers a Notice of Deficiency as a precursor to formally assessing an underpayment of taxes and penalties. Once notice is given, the IRS must wait 90 days after the Notice of Deficiency is mailed to the taxpayer before the IRS can move the assessment from a proposed tax liability to an actual tax liability. This time period is expanded to 150 days for taxpayer’s residing outside the United States; however, for purposes of this discussion, I will focus on taxpayer’s residing within the United States.
Tax Court Petition Procedures
If a taxpayer does not agree with the IRS proposed assessment, the taxpayer must file a Tax Court Petition with the United States Tax Court to preserve the taxpayer’s right to appeal. On April 17, 2023, Beyoncé’s attorney filed a Tax Court Petition 89 days after the Notice of Deficiency was mailed, thereby preserving Beyoncé’s rights to appeal an unfavorable decision by the IRS. Once a Tax Court Petition is filed, the IRS cannot collect any tax and penalties reported on the Notice of Deficiency until the Tax Court decision becomes final.
The Notice of Deficiency includes a “Last Date to Petition the Tax Court”. This date is fixed by law and the United States Tax Court cannot consider a taxpayer’s case if the petition is filed late. It is imperative that taxpayers and tax professionals understand the immutability of Tax Court Petition deadlines. The United States Tax Court must receive a petition by the 90-day deadline if the taxpayer seeks relief in Tax Court.
Disputing Proposed Taxes and Penalties
The proposed increase in tax and penalties in Beyoncé’s Notice of Deficiency covers tax years 2018 and 2019. An examination of the tax court petition filed on Beyoncé’s behalf reveals that the IRS is mainly focusing on Beyoncé’s philanthropic endeavors. The proposed $2.7 million increase in tax and penalties is driven by significant disallowances of various charitable deductions reported on Beyoncé’s 2018 and 2019 tax returns.
No matter what items drive the proposed increase in tax, the method to dispute the items can be boiled down to 2 main factors:
- Legal substantiation for items reported on a tax return
- Evidence that supports the position taken on the tax return
The challenge for any taxpayer protesting a Notice of Deficiency is that the IRS has traditionally benefited from the case precedence established in Welch v Helvering of a “presumption of correctness.” This case established the burden of proof on the taxpayer in disputing unagreed adjustments proposed by the IRS. Evidence is generally not required to be included when filing an income tax return; however, to successfully dispute a Notice of Deficiency, the taxpayer is required to provide evidence supporting the income and deductions the IRS is disputing. Therefore, Beyoncé’s team will need to provide supporting evidence to substantiate the income and deductions at issue.
A taxpayer who receives a Notice of Deficiency would generally follow similar steps as Beyoncé to dispute the IRS. (No dancing skills required!) If you encounter a Notice of Deficiency, please contact me or a member of our Tax Controversy team. We’ve frequently encountered and successfully resolved cases involving Notices of Deficiency.
 Beyonce Knowles-Carter v Commissioner, United States Tax Court, Docket No. 5695-23
 Lederman, Leandra & Mazza, Stephen W. Tax Controversies: Practice and Procedure,