Taxpayer’s Guide to IRS CP59 Notice 

If there’s anything potentially worse than paying taxes to the IRS, it’s filing a tax return. It’s like adding insult to injury by giving you more work to do so the IRS can tell you to pay them money. Yet not filing your tax returns when required can lead to more notices and letters from the IRS, as well as penalties and interest if it turns out you owe taxes.

If the IRS believes you haven’t filed a return and should have, they’ll usually let you know by first sending you Notice CP59. Let’s take a look at what to expect if you find this letter in the mail. 

Understanding the IRS CP59 Notice 

The CP59 Notice is the first (or one of the first) notices sent to taxpayers who did not file one or more tax returns, but the IRS believes they should have. This notice will also contain information on what the taxpayer can do to resolve this issue.

The IRS has been sending out CP59 Notices for a while now, but it recently updated the notice’s format so it’s easier to read and understand. The IRS also increased the number of CP59 Notices it’s mailing out, especially to those who the IRS suspects are high-income taxpayers. For example, the IRS recently announced it planned on sending out more than 100,000 notices to people the IRS believes have between $400,000 and $1 million in income for the 2017 to 2021 tax years. 

In early 2024, the IRS said that it was sending out 20,000 to 40,000 of these notices every week. For a few years during COVID, the IRS stopped sending out many notices. This effort shows the agency’s commitment to return to business as usual and to close the tax gap by getting people to deal with their unfiled returns. 

If you receive an IRS CP59 Notice in the mail, you need to take it seriously and respond promptly. If you don’t, you risk getting charged a failure-to-file penalty. This is 5% of any owed tax for each month (or part of the month) that the tax return is filed late. After five full months, this penalty maxes out at 25% of the unpaid tax balance. 

As if that wasn’t bad enough, the IRS charges interest on not just unpaid tax balances, but penalties as well. In addition to the failure-to-file penalty, you will also incur a failure-to-pay penalty. Although this penalty is much lower (just 0.5% to 1% each month), it also applies monthly and can also get up to 25% of your tax due. 

Responding to CP59 

How you respond to a CP59 Notice depends on whether you agree with the IRS that you have a missing tax return (or two) to file. If you agree with the IRS, you’ll need to complete and file any missing returns.

If you disagree with the IRS, you’ll need to explain to them why you feel you don’t have any missing tax returns. You can do this by completing IRS Form 15103, Form 1040 Return Delinquency or by calling the toll-free number located on the top right of the CP59 letter. Regardless of which method you use, you’ll need to provide reasons to the IRS, such as why you aren’t required to file a return or that you already filed the missing return(s).

Whatever your response is, you should act quickly. Any delay could result in more penalties and interest or the IRS taking additional steps to collect taxes they believe you owe (even if you don’t). Also, don’t forget that if the IRS owes you a refund or credit, they can’t send you that money until you file the applicable tax return. 

How to Complete IRS Form 15103 

As far as IRS forms go, this one is fairly short and straightforward. After filling it out, you can mail or fax it to the address or fax number provided with the CP59 Notice, along with the stub that came with the notice. If you already filed the missing return but it’s been more than eight weeks since submitting it to the IRS, you’ll need to attach another copy of it to Form 15103. 

Ignoring the CP59 Notice 

If you ignore your CP59 Notice, the next steps will likely involve the IRS sending you CP516. This notice is similar to CP59 and essentially serves as another reminder for you to file any missing tax returns.

But what about situations where you don’t need to file a tax return? You might be thinking, “I can ignore this notice because I know I wasn’t required to file a return for that tax year.” Assuming for a moment this is correct, the IRS may not know this. The IRS may be unaware that there was a change in your financial situation that meant you didn’t need to file a return for a particular tax year.

Here’s how things could go if you ignore a CP59 Notice even if you weren’t required to file a tax return. The IRS has something called a substitute for return (SFR). This is a tax return the IRS prepares and files for you that’s based on third-party information. This might include a W2 or 1099 the IRS receives from your employer or client.

Because the IRS doesn’t have all the information it would normally have if you filed a return, the IRS will have to draw one or more assumptions. For example, it will assume the wage information it received from third parties is correct. It will also make assumptions about your filing status, whether you have dependents (the IRS will likely assume you don’t unless they get information that says otherwise), and that you have no itemized deductions.

In some cases, these assumptions will be correct. But in many cases, they won’t be. And when they’re wrong, the incorrect information used by the IRS is more likely going to increase your tax bill, not lower it. In other words, when the IRS prepares an SFR, it will likely lead to you having a higher tax bill than necessary.

If the SFR results in the IRS believing you owe taxes, they will begin the collection process and start sending you collection notices asking you to pay up. If you still don’t file the missing return or pay what the IRS says you owe, things will escalate further. Eventually, the IRS will send you CP3219N, a type of Notice of Deficiency. If you receive this notice (and disagree with it), you have 90 days to respond by either:

• Filing a petition with the Tax Court explaining why you disagree with the tax assessment;
• Filing any missing tax returns; or
• Calling the IRS to explain why you believe you don’t have to file a missing tax return.

The only situation where you can ignore the CP59 Notice is if you received it within eight weeks of filing the missing return. In this case, it’s okay to ignore the CP59 because the IRS probably sent it to you and didn’t know your return had recently arrived or was in the middle of processing. However, even in that case, you may want to double-check to make sure the IRS received your return.

What If You Haven’t Filed Because You Can’t Afford to Pay Your Taxes? 

If you believe that filing any missing tax returns will result in taxes you can’t afford to pay, you still need to file the missing returns. Any return you file will most likely result in a smaller tax bill than if the IRS prepares a substitute for return. Also, you can work with the IRS to figure out a way to resolve your outstanding tax balance, whether it’s paying over time or settling your tax debt for less than what you owe with an offer in compromise. 

Need Help Responding to a CP59 Notice? 

Many taxpayers can handle the CP59 Notice on their own. But you might be in a situation where things are more complicated. For instance, you might have felt that you didn’t need to file a tax return for a particular tax year, but now you’re not so sure. Or perhaps you agree that you need to file the missing tax return, but aren’t sure how because of your complex financial or personal situation.

Either of these scenarios might require the advice of a tax pro. The W Tax Group offers free consultations to provide you with a better understanding of your tax situation and what your next steps should be. Feel free to get in touch at any time and we’ll be happy to help.