Understanding the CP518 Notice: Your Final Warning
Receiving a letter from the IRS can be unsettling, but understanding what it means is the first step to resolving any issues. A CP518 notice isn’t just another piece of mail; it’s a final warning from the IRS that they have not received a tax return they believe you should have filed. Let’s break down what this means for you and what actions you should take.
What Triggers a CP518 Notice?
The IRS has a fairly sophisticated system for tracking who should file a tax return each year. They receive information from various sources – your employer, banks, investment companies, and more. These reports tell them how much income you made. When the IRS sees income reported under your name but doesn’t receive a tax return from you, they may start sending notices.
Here’s a common sequence:
- Initial Notices: The IRS usually sends an initial notice (often a CP59 or CP59A) when they haven’t received a return they expected.
- Subsequent Notices: If you don’t respond, they’ll send follow-up notices.
- CP518 – The Final Notice: The CP518 is the “final notice.” This is their last official attempt to get you to file before they may start using other methods to collect.
What Does the CP518 Notice Actually Say?
The specific wording can vary, but generally, a CP518 notice will include the following:
- Your Name and Address: This confirms it’s intended for you.
- The Tax Year: It will state which tax year’s return is missing.
- A Deadline: It will typically give you a deadline to file your return, often within 30 days.
- Potential Consequences: It may explain penalties you’ll incur and other actions the IRS can take if you don’t file.
- Contact Information: It will provide ways to contact the IRS to discuss the notice, file your return, or ask questions.
Why is it Important to Respond Promptly to a CP518?
Ignoring a CP518 notice can lead to several serious consequences:
- Penalties: The IRS can charge penalties for failing to file, which are often a percentage of the taxes owed. The longer you wait, the bigger these penalties can get.
- Interest: In addition to penalties, they can also charge interest on any unpaid taxes, from the original due date.
- Substitute for Return (SFR): If you don’t file, the IRS can prepare a tax return for you based on the information they have. This is called a “Substitute for Return.” The problem is, the IRS may not include all the deductions and credits you’re entitled to, so you could end up paying more tax than you actually owe.
- Collection Activities: The IRS can start collection actions, like wage garnishment, bank account levies, and tax liens.
- Loss of Refund: If you were actually due a refund, you may lose the ability to claim it after a certain period of time if the return isn’t filed.
What Actions Should You Take When You Receive a CP518?
The absolute first thing to do is to not panic, and then carefully follow these steps:
- Verify the Notice: Ensure the CP518 is genuinely from the IRS. If you’re not sure, compare it with sample notices on the IRS website or contact the IRS directly using the contact information on the notice.
- Understand the Notice: Carefully read the notice to identify which tax year’s return is missing and the deadline.
- Find Your Records: Gather all your relevant tax documents (W-2s, 1099s, bank statements, expense receipts, etc.). You’ll need these to file your return.
- Prepare and File Your Tax Return: If you haven’t filed your tax return, do so immediately. You can file electronically or by mail. If you need help, consider using a tax software program or hiring a professional tax preparer.
- Pay Your Tax Bill (if applicable): If you owe taxes, pay them as soon as possible to avoid penalties and interest. The IRS offers several payment options. If you are unable to pay, you can reach out to see if they can help create a payment plan, or offer other solutions.
- Respond to the Notice: Contact the IRS, using the contact information on the notice, to let them know you’ve filed your return. You can also use this time to ask any questions that you may have about the notice, or your return.
- Keep Records: Keep copies of your filed return, payment confirmations, and all correspondence with the IRS.
- If you believe you do not have to file: If you believe that you are not required to file a tax return, it is important to respond to the IRS and explain why, along with providing any supporting documentation you may have.
Common Misconceptions about CP518 Notices
- “It’s just a form; I can ignore it.” False. The CP518 is a serious final notice that can lead to significant penalties and collection efforts.
- “They’ll figure it out on their own.” The IRS might prepare a Substitute for Return (SFR) based on the information they have but as mentioned before, it may not include all your potential deductions and credits which can lead to a bigger tax bill.
- “I don’t owe anything, so I don’t need to file.” Even if you expect a refund or don’t believe you owe taxes, you may still be required to file a tax return. The IRS uses your tax return information to determine if you are due a refund, or do owe taxes.
What if I Can’t Pay My Taxes?
If you receive a CP518 and you owe taxes but can’t afford to pay, don’t ignore it. The IRS offers various payment options, such as installment agreements, offers in compromise, and temporarily delaying collection through hardship classification.
When Should You Seek Professional Help?
If you feel overwhelmed or uncertain about how to proceed, don’t hesitate to seek professional help. A tax professional such as an Enrolled Agent (EA) or Certified Public Accountant (CPA) can help you:
- Determine if you are required to file.
- Prepare and file your tax return.
- Navigate complex tax rules and situations.
- Negotiate with the IRS on your behalf.
- Create a plan of action for resolving any tax-related issues.
Avoiding Future CP518 Notices
The best way to avoid a CP518 notice is to ensure that you file your tax return on time each year. If you are having difficulty, or expect to have difficulties, be sure to:
- Keep good records: Save all your tax-related documents throughout the year.
- File on time: Know the filing deadlines for federal and state tax returns. The standard deadline for federal returns is April 15th, unless it falls on a weekend or holiday.
- Consider professional assistance: If you feel that you may be overwhelmed, consider having a tax preparer prepare your taxes, or just get guidance from one.
- Don’t ignore mail from the IRS: If you receive a notice from the IRS, read it carefully and respond promptly.
Conclusion
Receiving a CP518 notice is a serious matter, but it’s also an opportunity to get your tax situation back on track. Take immediate action, file any necessary returns, pay any taxes owed and work with the IRS if you have any further questions. If you’re unsure of how to proceed, it’s always a good idea to seek professional help.