IRS Notice CP2566

The IRS Notice CP2566 is to inform taxpayers that the IRS still has not received the Form 1040. This means that they must file a tax return. The IRS had to calculate your tax, penalty and interest based on wages and other income reported to us by employers, financial institutions and others. This type of notice falls under the category of “late return”. It was formally referred to as letter CP2566 but it was changed to notice. This notice is very serious as it means that the IRS is preparing a “Substitute for Return”.

REASONS FOR RECEIVING IRS NOTICE CP2566

There are some reasons why you would receive this particular notice from the IRS. They include:

• The IRS never received a tax return from you for the year specified on your notice.
• You were sent previous notices asking you to file a tax return because the IRS had not received one, but a response was never received.
• The IRS has completed a tax return for you and has calculated your tax, penalties and interest based on wages and other income reported to the IRS.

The IRS only sends Notice CP2566 if they believe you owe. If you fail to respond, the IRS will issue a Letter 3129 – Notice of Deficiency. This means you’ll either have to go to Tax Court or file a return in dispute. The letter invites you to sign and agree to the amount, file a return or write a letter.  Writing a letter to the IRS is only a waste of time as that will likely not resolve the problem. The IRS has specific forms and procedures, which must be followed.

STEPS TO TAKE AFTER RECEIVING THE NOTICE

1. Read the notice – Once you receive notice CP2566, you have to make a decision but you first need to ask yourself if you are confident enough to deal with the IRS on your own. If you are sure of what to do, call or write to them. If the issue is more complicated, you need to hire a Certified Tax Resolution Expert. The IRS may take full advantage of your lack of knowledge and experience.
2. Determine if the notice was sent in error – You need to know if there was a mistake along the way, check if you have an outstanding tax liability or you have unfiled or incomplete returns.

Now, we know the IRS sent you this letter because they didn’t receive your tax return. The question is whether you filed or did not file the IRS Form 1040.

FIRST CASE – You Filed Your Return

If you did file your tax return, you will need to gather proof of mailing. The certified return receipt is the best proof of filing.  The green card provides proof that you filed the return and it indicates the date it was received.  If you have the certified mailing receipt, then you can argue about the filing date and there is a procedure for this.

But, unless you have the mailing receipt, it is usually better to just re-file your return. However, since you are filing an original return you have the opportunity to go through your records and find more deductions.

SECOND CASE – You Did Not File Your Return

This is a wake-up call that the return needs to be filed.  If you do not have the information and documents to prepare the return, you can request wage and income/account transcript from the IRS by calling the appropriate number. It is not wise to rush out and file a return before reviewing your IRS information and considering your options. Especially since the IRS may seize your refund to pay for other taxes or student loans, etc.

This is NOT an audit but can become one based on the information provided on the return.  The fact that you are filing one or more back returns does increase your chance of being audited. The IRS can’t enforce collection against you until you either file a return or they do a “Substitute for Return” and assess the tax. Filing a bunch of back return, without an Action Plan, especially if you will owe is not in your best interest.  It is typically best to prepare all the missing return, form a Plan of Action for resolution and then file all the returns to the correct IRS address.

If you are in a situation where you cannot find some of your documents, they can be obtained from the IRS such as W-2s and 1099s. These can be acquired from the IRS via the wage and income transcript. However, as far as expenses are concerned, those would have to be recreated from bank statements or receipts.

There are situations where the IRS will file a Substitute for a Return. The typical situation is when the IRS notices that a person hasn’t filed for a few years, yet that person has income documents on file with the IRS, such as W-2 and 1099 forms. The IRS will then file substitute returns for all the unfiled years based on the information on those tax documents.

The IRS will prepare a substitute return in the best interest of the government. A substitute return has no deductions, no credits, and could result in the taxpayer having a balance owed.

If a tax return is prepared without any deductions, without any tax credits, it’s quite likely that the IRS’s calculation of tax is much higher than it should be. And in most cases, that’s just what happens. And sometimes, the IRS owes the client a refund.

NOTICE DEADLINE – 30 days from the day the IRS sends the letter to you. If you miss the deadline, the IRS will process the return and assess tax, penalties and interest. The IRS will send you a bill for the balance due. This amount will likely be much higher than what you would owe if you had filed your own tax return, because the IRS calculates the taxes you owe at the highest tax rate and with no deductions.