It is important to know your rights before dealing with the IRS. San Diego Tax Attorney William D. Hartsock offers this advice.
Why did I receive a CP63 Notice from the IRS?
If you have received a CP63 Notice from the IRS, it usually means that the IRS is withholding some or all of a tax refund you are expecting because you did not file one or more prior tax returns. The IRS will continue to hold your refund until you either (1) file the missing tax return(s) late; (2) establish that you already filed the tax return(s) at issue; or (3) establish to the IRS’s satisfaction that you were not obligated to file the missing tax return(s). If you do not do at least one of these things, the IRS will prepare a tax return (often referred to as “substitute” return) on your behalf based on what is usually very limited and often inaccurate information.
Whenever you receive a CP63 Notice, you should:
- Read the CP63 Notice carefully. If you already filed the tax return(s) identified in the notice, and did so within the eight weeks prior to the date of the notice, the return(s) you filed are probably just still being processed. Once they have been processed, the IRS will release your refund for the current year as long as you don’t have any unpaid taxes. If you do have unpaid taxes, the IRS will apply your refund to that tax debt and send you any amount remaining.
- If you haven’t filed the tax return in question, you should file it (or them, in the case of multiple returns) late. The IRS will assess a late filing penalty, and if you owe taxes, it will also assess a late payment penalty and unpaid interest. The IRS will notify you of any such additional tax obligations in one or more subsequent notices.
- You may not have filed the tax return(s) in question because you did not have a legal obligation to do so. If this is the case, you will need to establish, to the IRS’s satisfaction, that you did not have a filing requirement. Although it may be more efficient to simply file a return to appease the IRS, doing so will automatically trigger the late filing penalty. In some cases, it may still be more efficient to incur this penalty than to incur the costs associated with proving to the IRS that you had no obligation to file. In other cases, the more prudent approach in terms of time and/or money is to compile and submit documentation to the IRS explaining why you did not have a filing obligation. The tax attorneys at www.taxlawfirm.net can help you evaluate your options and assist in either preparing the delinquent tax returns or preparing documentation explaining why you had no obligation to file.
Answers to Frequently Asked Tax Law Questions:
What will happen if I had a filing obligation but didn’t file a return, and I do nothing in response to the CP63 Notice?
Ignoring a CP63 Notice is probably the worst thing you can do. The IRS will continue to hold your refund, and if you do owe taxes on the unfiled return, you will continue to incur interest penalties as time goes on. When the IRS prepares a substitute return, that return will almost always include inaccurate or incomplete information, resulting in excessive taxes being owed. It is almost always less expensive in the long run to face the problem head on as soon as possible. The tax law professionals at www.taxlawfirm.net can help.
If the IRS prepares a “substitute” tax return for me, what information will it use to prepare that return?
The IRS will use whatever information it has about what your income is likely to be. This information will be from third parties, often banks. For example, if you paid mortgage interest for the tax year in question, the IRS might multiple your mortgage interest payments by some factor to estimate your income, and attempt to tax you on that estimated amount. The IRS’s estimates of a taxpayer’s income often varies significantly from the taxpayer’s actual income.