What Letter 3523 is
Letter 3523 is the IRC 7436 notice. It follows an unanswered or unresolved Letter 950-C: "If the taxpayer does not file a protest letter seeking review by Appeals, the proposed tax involving IRC 7436 issues may not be assessed. Instead, upon expiration of the 30-day period, the taxpayer must be issued Letter 3523" (IRM 4.23.22.8.6, Feb. 27, 2025). The letter "provides notification that the taxpayer has 90 days to petition Tax Court if they want to contest the proposed assessment and suspends the statute of limitations for employment taxes dependent on the IRC 7436 issues." It is mailed certified or registered. Backup withholding on the same workers is handled separately, because the Tax Court does not have jurisdiction over it; the examiner "must immediately assess the backup withholding and suspend collection until after the Tax Court proceeding is concluded" (IRM 4.23.22.11.1).
The deadline
Ninety days from the date of the letter to file a petition with the United States Tax Court (150 days if addressed outside the United States). The period cannot be extended. If no petition is filed, the employment tax is assessed after the 90 days.
What to do
Treat the date as absolute. If you want to contest the classification, file the Tax Court petition within the 90 days; Appeals may still settle the case after a petition is filed, but the petition is what keeps the issue alive. If you agree, sign the enclosed agreement and arrange payment; the CSP guide explains why a settlement offer may still be available during Appeals. Expect a separate assessment of any backup withholding on the same workers, collection of which is suspended until the Tax Court case ends.
Questions about Letter 3523
Who receives Letter 3523?
Employer or payer whose examination reclassified workers as employees or denied section 530 relief, and who did not reach agreement. Letter 3523 is the IRC 7436 notice.
What is the deadline on Letter 3523?
Ninety days from the date of the letter to file a petition with the United States Tax Court (150 days if addressed outside the United States). The period cannot be extended. If no petition is filed, the employment tax is assessed after the 90 days.
What should I do when Letter 3523 arrives?
Treat the date as absolute. If you want to contest the classification, file the Tax Court petition within the 90 days; Appeals may still settle the case after a petition is filed, but the petition is what keeps the issue alive. If you agree, sign the enclosed agreement and arrange payment; the CSP guide explains why a settlement offer may still be available during Appeals. Expect a separate assessment of any backup withholding on the same workers, collection of which is suspended until the Tax Court case ends.
Is Letter 3523 about my own income tax?
No. This decoder covers information reporting and withholding: the notices a payer, filer or payee sees because of Forms 1099, W-2, 945 and the TINs on them. Individual income-tax notices follow a different track.
Have a different notice? The IRS notice decoder lists all 89 in the order they tend to arrive.