IRS CP518 Notice: Avoid Penalties with These Next Steps

Did you recently receive a CP518 notice or one like it? If so, your first step is to review the letter and determine whether you agree with the IRS’s claims. From there, take the appropriate steps to resolve the issue—this may include filing your tax return, completing Form 15103, or contacting a tax professional for guidance. 

If you don’t act, the IRS may file your past-due tax return for you and assess tax against you. Once that happens, they can begin taking enforcement action.

Below, you’ll learn what to do if you receive a CP518 notice, how to file past-due returns, and what to do if you can’t pay the tax balance right away. Or contact us at The W Tax Group to get assistance now.

Key Takeaways:

• An IRS CP518 Notice is the final notice that you must file a past-due return for a specific tax year. 
• It typically follows earlier notices like CP59 or CP516. Ignoring it can lead to the IRS filing a Substitute for Return (SFR) on your behalf and escalating enforcement actions.
• Even if you owe taxes and cannot pay right away, filing your return is the first step toward compliance and opens the door to payment plans. 
• If you aren’t sure how to proceed or disagree with the notice, it may be time to consult a tax professional.

What is IRS Notice CP518?

An IRS CP518 Notice is a letter sent by mail to remind you that the IRS has not received a required tax return for a specific year. It is considered the final notice before the IRS takes further action on your missing tax return, so it’s important to respond quickly by filing your return.

You should not be surprised to receive a CP518 notice—it typically follows earlier notices that warn you about a missing return. These may include:

• CP80
• CP59
• CP516
• CP2566

If you ignore CP518, the IRS will likely file a Substitute for Return (SFR) on your behalf. An SFR uses the income information the IRS has on record and generally applies the least favorable tax treatment, meaning it does not include deductions, credits, or exemptions you may qualify for.

Once an SFR is filed, the IRS can move forward with enforcement actions, which may include penalties, tax levies, or even wage garnishment.

Why You Received CP518

If you received a CP-518 notice in the mail, it means the IRS does not have a record of your tax return for a specific year. You may have received CP518 for one of the following reasons:

• The IRS is still processing a return you filed within the last eight weeks
• There was an error when recording your return
• Your return is delayed in processing
• IRS records show income reported under your name, even though you did not file a return

To understand why you received this notice, start by reviewing whether you filed a return for the year in question and whether you were required to file. If you believe you already filed, you may need to contact the IRS to confirm whether they received it or if an error or delay occurred.

What is Form 15103 and How to Use It

A CP518 notice requires you to take action, which is why it typically includes Form 15103: Form 1040 Return Delinquency. This form should be completed and mailed to the IRS as soon as possible if any of the following apply:

• You already filed your tax return
• You were not required to file a return
• You plan to file your return soon
• You received the CP518 notice on behalf of a deceased taxpayer.

Depending on your situation, you may need to include supporting documents. For example, if you already filed your return, include a copy of the return or your tax transcript. Submitting this form can prevent further enforcement actions and show the IRS that you’re actively addressing the issue – but to be on the safe side, consider consulting with a tax attorney first.

What to Do If You Agree With the Notice

If you agree with the CP518 notice and know you haven’t filed your return, it’s important to act quickly. Your first step is to complete and send Form 15103 to show your intent to file. 

Then, gather all documents and financial information for the year in question and prepare your tax return right away. Submit your return to the IRS even if you believe you may owe taxes that you cannot pay in full immediately.

What to Do If You Disagree With the Notice

Even if you disagree with the IRS’s claims, it’s essential to respond to the CP518 notice. Ignoring it will only make the situation worse.

To dispute the notice:

• Complete Form 15103 and check the box explaining why you disagree.
• If you already filed your return, include a copy of the return or your tax transcript.
• If you were not required to file, attach W-2s or 1099s that show your income was below the filing threshold.

If you disagree with the notice but aren’t sure how to proceed, contact a tax professional who can guide you through the process and help prevent any escalation.

What Happens If You Don’t Respond

Whether you agree or disagree with the notice, ignoring it is the worst decision you can make. If you don’t respond, the IRS may file a Substitute for Return (SFR) on your behalf.

An SFR is based on third-party information that the IRS has collected, such as wages or income reported under your name, and it applies the least favorable tax treatment. This means the IRS will likely:

• Use the least beneficial filing status
• Exclude tax credits you may qualify for
• Omit deductions and exemptions
  
  

Once an SFR is filed, the IRS will send a Notice of Deficiency. That gives you 90 days to respond before the tax assessment becomes final. Once that happens, the IRS can add penalties and may initiate collection actions—including wage garnishment or asset seizure.

What If You Owe Taxes and Can’t Pay?

When you have a tax bill that you can’t pay off right away, the IRS has several options, including:

• Installment agreement: In a nutshell, you agree to pay off a specific amount each month in exchange for the IRS agreeing not to pursue additional collection efforts against you. 
• Offer in compromise: You settle your taxes for less than owed, after proving that your offer is the most you can afford to pay.
• Currently not collectible status. This type of temporary tax status signifies to the IRS that you are unable to pay off even a portion of your tax bill due to your current financial situation. This status protects you from enforcement actions, but if your financial circumstances change later, then the IRS might remove you from this tax status category and resume collections.

You should also look into penalty abatement, which can help to reduce your balance owed once you file your tax returns.

What If You Just Filed Your Return?

If you just recently filed your return but still received CP518, then the IRS might still be processing your return. If you filed in the last eight weeks, contact the agency to see if they’ve received your return.

When to Seek Professional Help

After receiving a CP518 in the mail, it’s possible to handle the situation on your own, but there are specific circumstances when using a tax lawyer is a huge advantage. 

• Advocacy: It’s always best to secure a tax attorney if you feel unsure about the tax laws and you want a strong advocate by your side. 
• Guidance: A tax lawyer can help you understand your options if you’re not sure what your next steps should be or what the best path forward is in your circumstances.
• Protection: If you are concerned about potential enforcement and collection efforts, then a tax attorney can help reassure you and guide you towards taking the right steps to prevent escalation. 

A tax attorney can help you file unfiled returns and deal with tax debt and penalties. Hiring a tax attorney is also a great idea if you know you’ll need to negotiate or compromise with the IRS. 

Act Now: File Your Returns or Seek a Consultation With a Tax Pro

The bottom line is that you need to act if you receive CP518 in the mail. The best course of action is to file your past due returns, but that’s often far easier said than done. You may have a complicated tax situation or feel unsure about the best way to handle your delinquent return. 

Do you need help disputing a CP518 notice, filing your late returns, resolving tax debt, or understanding your tax situation? Then, request a free tax relief consultation with our team now by leaving your contact information on our online form. Our tax professionals will be with you as soon as possible.

Frequently Asked Questions: CP518 and Unfiled Returns

Now, we’ll go over answers to some of the most frequently asked questions about unfiled returns and CP518 below.

What is the deadline to respond to CP518?

In general, it’s best to respond to a CP518 notice immediately or by the specific date listed on your individual letter. To locate the date on your notice, you should read through your notice thoroughly. The letter should include a specific date. If you aren’t sure what action to take, then contact a tax professional before the date on the return.

Will the IRS cancel penalties if I respond quickly?

The sooner you respond, the lower the penalties will be. The IRS may also be more likely to abate penalties if you show that you’re taking steps to get back into compliance.

What happens if I ignore multiple notices?

If you don’t respond to a CP518, then the IRS will file a Substitute for Return on your behalf. If you don’t respond to notices about the SFR, the IRS may eventually garnish your wages, seize your assets, or take other actions to recover the money they’re owed. 

How do I prove I already filed my return?

If you recently filed your returns within the last eight weeks, then you can ignore the claim and wait for the IRS to process your return. If it’s been longer than eight weeks, however, then you should complete Form 15103 and include a copy of the original tax return you filed. You should mail these important documents off to the IRS. The best way to do this is through certified mail with a return receipt. You can also attempt to go online to your IRS online account and check under the “Tax Records” tab to see if you can locate your last tax transcript.