IRS CP59 Notice: What It Means and How to Respond Fast

Checking your mail and seeing an IRS return address is enough to make anyone panic. If you’ve received IRS Notice CP59, it states that you failed to file a tax return and that the IRS believes that you should have filed one.

If your mind automatically jumps to worst-case scenarios like audits, criminal charges, and wage garnishment, take a deep breath and learn more about what CP59 really means. While ignoring this notice may lead to unwanted assessments and eventually aggressive collection efforts, the notice on its own doesn’t mean you’re facing imminent danger. But you do need to take action.

Unsure of how to respond? Need help with unfiled returns? The team at BestTaxPro™ is here to help you move forward. Learn how we help with unfiled tax returns.

Key Takeaways

• An IRS CP59 notice means that the IRS thinks you did not file a required tax return.
• This notice does not automatically indicate that the IRS suspects fraud or tax evasion.
• If you already filed a return, you may have received the notice because of processing delays, filing mismatches, or other issues.
• If you haven’t filed, filing now can help reduce penalties and prevent escalation.
• If you’re not required to file, you should reach out to the IRS and explain why.
• Penalties, interest, and Substitutes for Returns are all possible outcomes if you ignore this notice.

What is an IRS CP59 Notice?

An IRS CP59 notice is a letter sent by the IRS when they believe that a taxpayer has not filed a required tax return. They typically send this letter when they receive income information from employers, clients, banks, investment firms, or other third parties, but they haven’t seen the income reported on a tax return.

The notices typically ask you to either file the return in question, confirm that you have already filed the return, or explain why you were not required to file for that year.

Common Reasons You May Receive a CP59 Notice

There are many reasons that you might receive a CP59 from the IRS, including:

• You forgot to file a return.
• You thought you were below the filing limit for the year.
• You filed, but transposed digits on your Social Security number, so the return wasn’t processed correctly.
• There’s a mismatch in the IRS’s records.
• You’re a victim of identity theft.
• You didn’t file due to divorce, family emergencies, physical or mental health struggles, or other personal or business reasons.
• Due to processing delays, the IRS doesn’t realize that you already filed.

Those who typically do not have to file a tax return and did not realize that they earned above the filing threshold are particularly vulnerable to these issues. But generally, taxpayers receive a CP59 because they didn’t file due to their personal life, business obligations, or financial hardship getting in the way.

What Happens If You Ignore a CP59 Notice?

Ignoring any notice from the IRS is risky. The IRS prefers to work out problems with taxpayers voluntarily, rather than forcing assessments or pursuing involuntary collection via liens, levies, and wage garnishment. But if taxpayers ignore notice after notice, they may have no option but to pursue enforced collection.

Let’s go over what you risk if you do not reply.

Substitute for Return

If the IRS believes you should have filed a return and they have tax documents from employers, banks, and other third parties, they may go ahead and file a Substitute for Return on your behalf. This is a return that only uses the income information available to the agency and does not account for any deductions or credits. As a result, an SFR is likely to result in a tax bill much higher than what you would owe if you filed a return.

Penalties and Interest

Interest and penalties will accrue until your tax debt is resolved. Once you file or the IRS issues an SFR, they’ll backdate the penalties and interest to your original due date. In this case, you face both the failure-to-file and the failure-to-pay penalty.

The failure-to-file penalty, at 5% of your unpaid taxes per month, is significantly higher than the 0.5% assessed for the failure-to-pay penalty. That’s why it’s always recommended that you file your return, even if you cannot pay your balance in full right away. If you don’t file or pay until long after the due date, these penalties can get up to nearly 50% of your balance.

Additionally, interest on tax debt compounds daily. Each day you wait to address this issue leads to a higher tax bill.

Collection Actions

Once the IRS establishes the tax debt with an SFR, they’ll move forward with collections if you don’t appeal the balance or make arrangements to pay. They can then send CP14, CP501, CP503, CP504, and LT11 or Letter 1058. Eventually, they will be able to place a lien on your property, garnish your wages, freeze the funds in your bank account, or levy your other assets.

Does CP59 Indicate Fraud or Criminal Tax Risk?

It’s normal to panic when you get a notice from the IRS, but note that CP59 does not automatically indicate an audit, criminal prosecution, or other serious issues.

CP59 is automatically sent out to taxpayers who have not filed a return, and it is not indicative of a serious investigation or legal action against you. While an audit may follow if your return doesn’t line up with what IRS records say, that’s not what CP59 is for. Additionally, criminal charges are very rare with unfiled returns and are reserved for intentional tax fraud and evasion, not taxpayers who forgot to file a return or fell behind.

For most taxpayers, resolving this issue is fairly simple. You can file the missing return, communicate with the IRS as indicated in the notice, and either pay the balance or arrange other payment options.

Situations That Warrant IRS Scrutiny

While most CP59 cases are routine cases involving unfiled returns and taxpayers who forgot the tax deadline, there are situations that may cause the IRS to look a little deeper into your finances and tax compliance:

• Multiple years of unfiled returns
• Large amounts of unreported income
• Intentionally unreported earnings
• Offshore accounts
• Payroll tax issues
• A history of tax compliance problems

The more years you’re behind and the higher your probable balance is, the more likely it is that the IRS may be more proactive in pursuing collection of your tax liability.

How to Respond to an IRS CP59 Notice

First, take a few minutes to read the notice in full. Check the tax year, notice date, and SSN. You can use the SSN and name on the notice to verify that you are the intended recipient. If so, here are the possible responses based on your situation.

You were supposed to file and didn’t. You can complete and send your return to get back into compliance. If it’s within two years of the original due date, you can still file electronically. A tax professional can be invaluable if you have missing records, years of unfiled returns, a complex tax situation, or unfiled business returns.

You already filed. If you believe that you have already filed, you can double-check what the IRS has received. You may look at your tax software account, search for e-filing acceptance e-mails, or look at your tax transcript. If you filed in the last eight weeks, the IRS says you can generally ignore this notice, but you should still double-check. If it’s been more than eight weeks, the return may have been lost.

You didn’t have a filing requirement. Contact the IRS to explain why you didn’t need to file.

What to Do If You Can’t Afford the Tax Bill

People often put off filing their tax return because they know they can’t afford the subsequent tax bill. However, filing a timely return is always better than waiting for the IRS to notice that you haven’t filed, especially since the IRS has payment options for those who cannot pay in full.

Options include:

• Installment agreement: By extending payments over the rest of the time left until your Collection Statute Expiration Date, you can pay your tax debt off in more manageable monthly payments.
• Offer in compromise: This option allows you to settle your tax debt for less than you owe, but it is reserved for cases where the IRS genuinely believes it cannot collect in full.
• Partial payment installment agreement: This option requires monthly payments, but those payments are lower than what you would pay on a typical installment agreement. When you reach the Collection Statute Expiration Date, any remaining tax liability is written off.
• Currently not collectible status: If you are facing financial hardship and cannot pay anything, currently not collectible status may give you a temporary break from collection efforts.

Note that even if you cannot pay in full, paying what you can upfront decreases what you ultimately owe in penalties and interest. You may also want to seek penalty abatement to reduce or remove penalties for late payment or filing.

Your Next Steps If the Notice is Incorrect

If the notice is incorrect and you either did not need to file a return or if you already filed, you can reach out to the IRS directly to rectify their records. Respond in writing and include supporting documentation.

If you already filed, provide proof of filing. Keep copies of all communications, and consider sending returns via certified mail so you have proof of receipt.

Taxpayers facing complex tax problems can benefit from working with a tax professional who can communicate with the IRS on their behalf, figure out what went wrong, and address the issue quickly.

How a Tax Professional Can Help With This Notice

You don’t always need a tax professional for a CP59 notice – for example, if you know that you need to file a return, have the necessary paperwork, and can pay in full. But if you have years of missing returns, a balance you cannot pay, or missing records, talking to a tax professional can help you get the situation back under control.

Your tax professional can communicate with the IRS for you, ensure that your filed returns are accurate and complete, and help you apply for payment options that may be available to you. They can also negotiate with the IRS to help you avoid aggressive collection actions.

Frequently Asked Questions