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liability or in failing to make a return at all. The
Commissioner “determines” a deficiency when he finally concludes
that the taxpayer has understated his tax liability and reflects
that determination in a notice of deficiency. See sec. 6212.
Before the Commissioner issues a notice of deficiency, an
extensive administrative examination or “audit” often occurs. It
begins when the Internal Revenue Service (the Service) selects a
taxpayer (in the case of a failure to file) or a taxpayer’s
return for examination and notifies the taxpayer of the
examination. At that point, the Service has usually taken no
position regarding the possible existence of a deficiency. The
Service typically will take no position regarding the existence
of a deficiency until the examination has been completed.
If the Service concludes that there is an understatement of
tax on a taxpayer’s return, it will usually issue a preliminary
report, commonly referred to as the 30-day letter. The 30-day
letter advises the taxpayer that the Service believes adjustments
are necessary to the taxpayer’s return and provides the taxpayer
with a listing of the adjustments and a calculation of the
taxpayer’s correct income tax liability. The 30-day letter will
also state the amount of the understatement that the Service
contends the taxpayer has made, and it will calculate the
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