Notice of Deficiency...Will they take my taxes this year?

About 2 months ago I received a notice from the IRS stating that I may owe them $5000 due to my stock company reporting x and my employer reporting x. I was given 30 days to dispute the audit results. Well I sent in a Schedule D form to balance out the two but I have received a notice of deficiency from the IRS stating I still owe them $5000. The notice also states that I have until March to petition the the tax courts. I called the IRS and the rep did some recalculating and now says I owe $2000...but they havent received my Scheduled D form yet...I am going to resend my dispute....my question is if I file my taxes now will they be taken?

If you have not received a bill--notice and demand in IRS jargon--any refund due you will not be offset.

Your case is not at the billing stage yet and will not get there until a couple months after you agree to some amount of additional tax or your right to go to Tax Court expires. A bill, in the case of an audit, would start out "We have made an adjustment to your tax for the year NNNN"

Probably.

Will they accept your return? Absolutely!

However, I would not submit your 2007 return until you clear the matter up.

If they believe there is a deliquency of $2000, and you dont pay it or straighten out whether it is right or wrong, then you wont get any refund, if entitled, in 2008, as they will apply it to the balance due. If you can straighten it out first, you wont have to recalculate when you owe them and what they owe you.

It's pretty easy to resolve to..

Go back to what was reported on W2 by your employer and the 1099 reported by your broker. Compare those numbers to what you submitted on your return. If you neglected to report a sale of stock, remember that the IRS has no idea what you paid for it, so they assume you paid ZERO and charge you for the entire amount as a gain. Make sure you complete an amended return for those areas and you should be OK. I would also recommend that you visit a local IRS office and sit down with a representative there to make sure it's correct, since you have two different numbers from them

If IRS has not received your Sch D, was it mailed to the address they provided in the notice of def. . Ask the rep if you can fax it to them,
IRS will take your refund if your return for the year you owe is fully processed and you have received your balance due notice.
I personally would not petition the court, it is a lengthy and costly thing to do, you must pay a fee up front and wait for ever for your case to be settled,