What is the CP39 Notice: Refund Applied to Past Due Taxes?
The IRS, like any creditor, has the right to collect debts that are owed to them. When you overpay your taxes during the year, you typically get a refund. However, if you have unpaid tax liabilities from prior years, the IRS can take your current tax refund and apply it towards those past due amounts. The CP39 notice is how they officially tell you that they have done this. Think of it as the IRS’s version of an invoice saying, “Hey, remember that money you owe? Well, we used your refund to pay it off.”
Background/History of the CP39 Notice
The IRS has always had the right to use refunds to offset other tax debts. Before computers and standardized notices, it may not have been as formalized. However, as tax processes became more automated, the IRS developed specific codes and notices like the CP39 notice to communicate these actions to taxpayers. The goal is to keep things transparent and provide taxpayers with a clear understanding of why they did not receive their full refund, if any at all.
How the CP39 Notice Works
When you file your tax return, the IRS processes it to determine if you’re owed a refund or if you owe additional taxes. If you’re due a refund, the IRS checks your records for any outstanding debts. This could include:
- Unpaid federal income taxes from previous years.
- Penalties for late filing or late payment.
- Interest on unpaid tax liabilities.
If the IRS finds any of these outstanding balances, they will apply all or part of your refund towards that balance. Once they do this, the IRS will send you a CP39 notice.
Here’s a breakdown of the process:
- You file your tax return: This is the first step in the process and starts when you submit your tax return with the IRS.
- IRS processing: The IRS processes your return and determines any refund you’re due.
- Debt verification: The IRS checks their records to see if you have any past due federal tax debts.
- Offset: If there are past due debts, they use your refund to pay them off. The full refund might be applied, or just a part of it.
- CP39 notice sent: The IRS sends you the CP39 notice explaining why you didn’t get your full refund and how it was used to pay off your past debt.
Understanding the CP39 Notice
The CP39 notice isn’t just a notification. It includes key information, such as:
- The amount of your original refund: This is how much you were supposed to receive.
- The amount of the offset: This is how much of your refund was applied to past due taxes.
- The tax years and type of tax to which your refund was applied: This is really important to know! You’ll see exactly where the refund went.
- Contact Information: Information to contact the IRS if you have questions or believe it was an error.
It’s very important to read the notice carefully. Make sure you understand which debt is being paid off. If you believe the IRS made a mistake, you’ll need that information when contacting them.
Example Scenario
Let’s say Sarah filed her 2023 taxes and was expecting a $1,500 refund. However, she had an unpaid balance of $1,200 from her 2021 taxes (including a penalty). The IRS applied $1,200 of her refund to cover the 2021 tax debt. She received a CP39 notice explaining that $1,200 was offset, and she would only receive the remainder of $300.
Who is Affected by a CP39 Notice?
Anyone who has a past due federal tax debt and is due a refund is at risk of getting a CP39 notice. This includes individuals, businesses, and self-employed individuals. It’s especially likely for people who:
- Have a history of filing late or not paying their taxes on time.
- Are unaware of outstanding tax debts.
- Have recently resolved a tax audit.
Related Concepts/Terms
Understanding the CP39 notice can be easier when you also know these related concepts:
- Tax Refund: The amount of money you get back from the government when you overpay your taxes.
- Tax Debt: The amount of money you owe to the IRS in unpaid taxes, penalties, or interest.
- IRS Offset: The act of the IRS using your refund to pay off past debts, of which the CP39 is the notice.
- Tax Lien: A legal claim the IRS makes against your property when you do not pay your tax debt. If the debt was not settled in the time they required it.
- Tax Levy: When the IRS seizes your assets to pay your unpaid taxes. This will happen if the debt is not settled and a tax lien is not enough.
Tips/Strategies
Here are some tips to help avoid getting a CP39 notice:
- File and pay on time: The best way to avoid the notice and also tax penalties is to file your taxes on time, even if you cannot afford to pay the full amount right away.
- Set up a payment plan: If you can’t pay your taxes in full, contact the IRS about setting up a payment plan. They offer various options based on your situation.
- Monitor your account: Check your account with the IRS frequently to ensure no debts exist.
- Stay organized: Keep accurate records of your income and deductions.
- Address tax issues promptly: Don’t ignore IRS notices. Address them immediately to avoid further complications and penalties.
- Check for notices every year: Check for notices each time you do your tax return. You might have forgotten about an issue from the past that you did not resolve.
- Tax professional: If you need additional support, speak with a tax professional to see if they can help.
Common Mistakes/Misconceptions
Here are some common mistakes and misconceptions related to the CP39 notice:
- Thinking the IRS is taking your money without reason: The IRS isn’t arbitrarily taking your money. They are using your refund to pay a debt they have already notified you about or a debt that has appeared after you did your taxes.
- Ignoring the notice: This is the worst thing to do! Always read and respond to the notices from the IRS. Ignoring a notice will not make it go away.
- Believing the notice is a scam: Always check the sender address and confirm that the IRS sent the letter to you. If you are still suspicious, contact the IRS directly.
- Assuming the offset was a mistake: While errors do happen, most CP39 notices are accurate.
- Thinking it’s only for income taxes: The IRS can also apply your refund to other tax debts, like self-employment tax or business taxes.
By understanding the CP39 notice and taking proactive steps to manage your tax obligations, you can reduce the risk of losing your refund. It is really important to understand that the IRS is allowed to do this, and they will do it if they need to. Make sure you pay your taxes on time and that you are current with all your payments.