Unless there is a holiday or special circumstance, April 15 is usually the deadline for most taxpayers to file individual income tax returns. If you fail to submit your tax return on time, the IRS can file it on your behalf and send you Notice CP2566.
When the IRS completes your 1040 for you, they will calculate your taxes and any additional penalties plus interest. You will have a higher tax liability than what you would owe if you had filed your own return.
This means you may have a lower refund than what you expected or that you even owe the IRS for unpaid taxes. We will discuss IRS Notice CP2566 and what to do when you receive it.
Why Did the IRS Send Me Letter 2566?
You will receive Letter 2566 from the IRS if:
- The IRS did not receive your tax return for the specific year indicated on your notice.
- You never gave a response to previous notices asking you to file a tax return.
- The IRS processed a tax return on your behalf and calculated your taxes plus any penalties and interest.
What are the Consequences of the IRS Filing My Return for Me?
As mentioned, the IRS charges penalties and interests for failure to file a tax return. You can also miss out on tax credits and deductions.
Penalties
The penalty for not filing is typically 5% of the tax due for every month that your return is overdue. It caps at 25% of your tax liability.
If the IRS assesses both a Failure to File and a Failure to Pay penalty within the same month, you will pay a combined penalty amount of 5% for each month or partial month your return is late.
Interest
Typically, interest accumulates on unpaid taxes from the return’s due date until full payment.
The current IRS interest rate is 8% and gets updated every three months. It equals the federal short-term rate plus 3%.
Credits and Deductions
When the IRS files a return for you (Substitute for Return), you will not get credit for deductions and exemptions for which you are otherwise eligible.
Can I Still File My Own Return If I Received a CP2566 Notice?
Yes. In fact, it is in your best interest to file your own tax return even if the IRS has filed a substitute return and sent you a CP2566 Notice. This allows you to take advantage of any credits, deductions, and/or exemptions to which you are entitled.
Usually, you have 30 days to file your own tax return after receiving this notice.
What Should I Do If I Got a 2566 Letter From the IRS Even Though I Did File a Return?
If you got a 2566 letter from the IRS even though you filed a return or if you believe there has been an error, you can contact the IRS for help at the number in your notice.
Keep in mind that it can take the IRS up to 2 months to process your return. If it has been longer than that, you can send the IRS a signed copy of your return with your 2566 response form.
Am I Eligible for a Payment Plan If the IRS Files My Taxes and I Owe?
Yes. You can qualify for a payment plan with the IRS if you owe taxes, even when the IRS filed your taxes for you.
These monthly payment plans allow for additional time to resolve unpaid taxes and can even reduce what you owe if you are eligible for an Offer in Compromise.
What’s the Difference Between IRS Notice CP2566 and Notice CP2566R?
Here is what is different for IRS Notice CP2566 and Notice CP2566R:
Notice CP2566
You will receive this notice when the IRS does not get a tax return from you for the specified year, and they then filed on your behalf using income reported by employers and financial institutions.
Notice CP2566R
The IRS sends this notice if they previously sent a CP63 notice advising that your refund is being held until you send the missing tax return, and they did not receive any response from you.
It is always best to file your return and pay taxes on time to avoid penalties and interest. If you cannot file on time for whatever reason, ask the IRS for an extension to file. If you receive a CP2566 Notice and need help with filing a late tax return, you can get more information and start online by answering 6 simple questions.
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