Understanding the IRS CP59 Notice: A Guide for Taxpayers
- Howard Richardson
- 2 days ago
- 5 min read
Receiving a notice from the Internal Revenue Service (IRS) can be a source of anxiety for many taxpayers. Among the various communications issued by the agency, the CP59 notice holds particular significance as it addresses a fundamental aspect of tax compliance: the failure to file a tax return. This article provides a comprehensive overview of the IRS CP59 notice to offer a detailed understanding of this critical tax document.
What is an IRS CP59 Notice?
The CP59 notice is a formal communication from the IRS informing a taxpayer that the agency has no record of a filed tax return for a specific year. It serves as an initial alert, prompting the recipient to either file the requisite return or provide a valid reason for not doing so. The notice is part of the IRS' broader efforts to ensure compliance with federal tax laws and address the "tax gap" – the difference between taxes owed and taxes paid on time.
It is important to distinguish the CP59 notice from its variants, which can sometimes cause confusion among taxpayers. The Taxpayer Advocate Service (TAS) has highlighted the differences between the three main types of non-filer notices:
Understanding which notice has been received is the first step in formulating an appropriate response.
What Should You Do If You Receive a CP59 Notice?
Upon receiving a CP59 notice, it is crucial to take prompt and deliberate action. The notice itself outlines the necessary steps to resolve the issue. According to the IRS, a taxpayer should:
File the tax return immediately: If you are required to file a tax return for the year in question, you should do so without delay. The notice will specify the tax year for which the IRS has no record of a return.
Explain why you are not required to file: If you believe you are not obligated to file a tax return for the specified year, you must provide a clear and concise explanation to the IRS. This can be done by completing and returning Form 15103, Form 1040 Return Delinquency, which is included with the CP59 notice.
Respond even if you have already filed: If you have already filed the tax return in question, you should still respond to the notice. It is possible that the return was lost, processed incorrectly, or that there is a discrepancy in the information on file with the IRS. In this case, you should complete Form 15103, indicating that you have already filed, and mail it back to the IRS.
The Legal Foundation for CP59 Notices
The IRS' authority to issue CP59 notices and enforce filing requirements is firmly rooted in federal law. The following sections of the Internal Revenue Code and Treasury Regulations provide the legal basis for these actions.
Internal Revenue Code (IRC)
The Internal Revenue Code is the primary source of federal tax law in the United States. Several sections of the IRC are particularly relevant to the CP59 notice:
IRC § 6012: Persons required to make returns of income This section establishes the general requirement for individuals to file income tax returns. The filing thresholds are based on gross income and vary depending on filing status, age, and other factors.
IRC § 6020: Returns prepared for or executed by Secretary If a taxpayer fails to file a return, the IRS is authorized to prepare a "substitute for return" (SFR) based on the information available to the agency. This section provides the legal authority for the IRS to take this step when a taxpayer does not respond to a notice like the CP59.
IRC § 6651: Failure to file tax return or to pay tax This section outlines the penalties for failing to file a tax return on time. The penalty is calculated as a percentage of the unpaid tax and increases the longer the return remains unfiled.
Treasury Regulations
Treasury Regulations provide official interpretations of the Internal Revenue Code. The following regulation offers further clarification on the requirement to file an income tax return:
26 CFR § 1.6012-1: Individuals required to make returns of income This regulation provides detailed guidance on the specific income thresholds that trigger the requirement to file a tax return for individuals. It elaborates on the general rules set forth in IRC § 6012, taking into account various factors such as marital status, age, and dependency status.
Consequences of Non-Compliance
Ignoring a CP59 notice can lead to a series of escalating enforcement actions by the IRS. The potential consequences are significant and can have a lasting impact on a taxpayer's financial well-being.
Failure-to-File Penalties
As stipulated in IRC § 6651, the penalty for failing to file a tax return is 5% of the unpaid tax for each month or part of a month that the return is late, up to a maximum of 25%. If the failure to file is fraudulent, the penalty increases to 15% per month, with a maximum of 75%.
Substitute for Return (SFR)
If a taxpayer does not respond to a CP59 notice, the IRS may create a Substitute for Return (SFR) under the authority of IRC § 6020(b). The SFR is based on information the IRS has received from third parties, such as employers and financial institutions. However, the SFR is prepared with the filing status of "single" or "married filing separately," which may result in a higher tax liability than if the taxpayer had filed their own return and claimed all eligible deductions and credits.
Backup Withholding
Failure to file a tax return can also subject a taxpayer to backup withholding. The CP59 notice warns that the IRS may notify payers, such as banks and other financial institutions, to withhold 24% of future payments of interest and dividends. This is done to ensure that some tax is collected on the income, even if a return is not filed.
Recent IRS Initiatives: Focus on High-Income Non-Filers
In February 2024, the IRS announced a new initiative, funded by the Inflation Reduction Act, to target high-income taxpayers who have failed to file tax returns. The agency identified over 125,000 instances of non-filing by individuals with incomes exceeding $400,000 between 2017 and 2021. As part of this initiative, the IRS began sending out a newly revised and simplified CP59 notice to these taxpayers, with a clear call to action to file their overdue returns and pay their outstanding tax liabilities.
Conclusion
The IRS CP59 notice is a serious matter that requires immediate attention. It is a clear indication that the IRS believes a taxpayer has a filing obligation that has not been met. By understanding the legal basis for the notice and the potential consequences of non-compliance, taxpayers can take the necessary steps to resolve the issue and avoid further enforcement actions. If you have received a CP59 notice, it is essential to act promptly and, if necessary, seek the guidance of a qualified tax professional.
To learn more, watch the free video, The Ultimate Guide to Solving Your IRS Tax Problems to discover tips on how to handle your IRS issues and fix them for good.
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