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IRS Notice CP63: Why Your Refund Is Being Held

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If you’re reading this, you’re wondering why your tax refund hasn’t arrived. Maybe you used the IRS online refund status tool and saw “Tax Topic 151” mentioned, but aren’t sure what that means. Then, a few weeks later, you got a CP63 notice in the mail stating the IRS was holding your tax refund. 

But why did the IRS send you this particular letter? The short answer is that the IRS believes that you haven’t filed one or more tax returns, and they suspect that those tax returns would show that you owe tax.

Before you panic, understand that this is only an assumption. If you file the missing tax returns and they don’t show you owe additional taxes (or prove you don’t have a filing requirement), you can still get your full refund. Also know that the CP63 notice involves a tax compliance issue, not accusations of criminal tax behavior.

If you recently received a CP63 letter in the mail, don’t ignore it. Doing so could lead to worsening tax problems, including a substitute for return and/or tax penalties. For help determining how to respond to this CP63 IRS notice, reach out about our tax refund services.

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Key Takeaways

  • CP63 notice – This means the IRS is holding your tax refund because you have one or more missing tax returns.
  • CP63 response – You should file the missing tax return, tell the IRS that the return will be filed late, explain that you didn’t have to file the return, or inform the IRS that you already filed.
  • Substitute for return – If you ignore the CP63 notice, the IRS may file a tax return for you, which will likely result in an exaggerated tax liability.
  • Tax refund offset – The IRS may use the refund they’re holding to offset a tax liability stemming from the unfiled tax return. 

What the IRS Notice CP63 Means 

Getting CP63 from the IRS means the IRS is holding your tax refund because the IRS thinks you have one or more unfiled returns. The IRS doesn’t know if those unfiled tax returns would result in you owing any taxes, but just in case, the IRS is withholding your tax refund from the current tax year. 

Information Included on a CP63 IRS Notice 

If you receive CP63 in the mail, expect it to contain the following information:

  • The tax year(s) the IRS believes you should’ve filed a tax return.
  • A contact phone number to call the IRS to discuss this notice.
  • An IRS address where you can mail the missing tax return (you can generally e-file if you file the return within two years from its original due date).
  • A brief explanation of what could happen if you ignore the CP63 notice.
  • What happens after you file the missing tax return.
  • Where you can go for more information. 

Why the IRS Thinks You’re Missing a Tax Return 

What likely happened is that the IRS received income information from a third party, such as a 1099 or W-2 from an employer. But they didn’t receive a tax return from you, reporting that income. Therefore, the IRS is assuming that there’s a reasonable chance you could owe them money, and they don’t want to send you a refund if it turns out you have unpaid income taxes. 

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What To Do After Receiving a CP63 

The next steps depend on the situation – here’s an overview:

You just filed a return for that year

If you filed the “missing” tax return within the last 12 weeks, the IRS most likely is still processing it and hasn’t updated the system yet. However, if it’s been more than 12 weeks, you’ll want to contact the IRS to inform them and see what’s causing the delay. 

You filed, but it’s been a few months

Check your transcripts. If you don’t see a return for that year, something must have gone wrong – there was a mistake with e-filing, it got lost in the mail, or your preparer never filed it. Contact the IRS to let them know you’re going to resend the return – or work with an attorney to ensure it gets handled correctly this time. 

You haven’t filed a return, but you need to

Prepare and file the missing tax return as soon as possible. You should do this even if it results in a tax bill you can’t fully pay when you file the return. 

You didn’t have a filing requirement that year

You must explain to the IRS why you didn’t need to file the tax return for that particular tax year. This applies if you’re below the income threshold for your filing status, and your situation doesn’t trigger any additional filing requirements. 

If it turns out there’s incorrect information on CP63, you can call the IRS at the number listed at the top of the notice to clarify.

What To Do If You Owe Money After Filing the Missing Tax Return 

Let’s assume you had a missing tax return, but you filed it after receiving the CP63 notice, and now you owe the IRS money. Here’s what happens next:

  • The withheld refund can more than pay for the taxes owed: The IRS will apply part of your refund to the tax balance, then send you the difference (sometimes with interest).
  • The withheld refund isn’t enough to pay for the taxes owed: The IRS will apply the entire refund to the tax balance, and then send you a bill for the remainder.

If you can’t afford to immediately pay off the remaining balance, you have some potential options:

IRS CP63 Notice Vs. Other Refund Hold Notices 

There are other IRS letters and notices that relate to the IRS not sending you your tax refund as anticipated. Among the most common are:

  • IRS CP05: The IRS needs more time to verify your income information before sending your refund.
  • IRS CP16: The IRS found one or more mistakes with a tax return you filed, and it resulted in a tax balance. The IRS applied some or all of your tax refund to that balance.
  • IRS CP49: The IRS has already applied some or all of your tax refund to an outstanding tax balance.
  • IRS CP75: A type of audit notice where the IRS needs additional information concerning a tax credit claimed on your return. The IRS is therefore holding the Earned Income Credit, Additional Child Tax Credit, Recovery Rebate Credit, and/or Premium Tax Credit portions of your tax refund.
  • IRS CP88: This is similar to the CP63 in that the IRS has decided to hold your refund because of one or more missing tax returns that may show you owe taxes to the IRS. 

What Happens If You Ignore Your CP63 Letter 

If you take no action, then several things will happen. First, the IRS will continue holding your tax refund, and then, the following can play out:

  • IRS files a return for the missing year. This is called a substitute for return (SFR). Because the IRS will have limited information about your finances and assume the least favorable tax options for you (such as no claimed dependents, no deductions, and no tax credits), the SFR will likely indicate you owe taxes.
  • The tax liability becomes due. The IRS sends a CP3219N deficiency notice, alerting you of the tax due based on the SFR. You have limited time to respond before the tax bill gets finalized. Or they may send a CP2566R notice outlining different appeal options and consequences.
  • Penalties and interest apply. Once finalized, the proposed debt incurs penalties and interest backdated to the return’s original due date. 
  • The IRS keeps the refund; collections start. If you don’t respond to any of these notices, the IRS will apply your refund toward that tax debt (refund offset). If the refund isn’t enough to cover your tax liability, the IRS will send you a tax bill for the remaining balance. 

How Wiggam Law Can Help With CP63 IRS Notices 

The key to dealing with a CP63 notice is not to ignore it. But figuring out how to respond is sometimes tricky. Things can get complicated if there are multiple tax years missing or you’re not sure whether you were required to file a tax return for a given tax year.

That’s where the tax professionals at Wiggam Law can come in. We can examine your tax history and confirm which years are missing. Then we can help you file your missing tax returns to give you the best outcome possible. And if it turns out the missing tax returns result in new tax liabilities, we can help you find ways to resolve those tax balances. Schedule a consultation today by calling (404) 609-1300 or filling out our online contact form.

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IRS Notice CP63 FAQs 

What should I do if I filed the tax return, but the IRS claims I didn’t file? 

If you recently filed the tax return (within the last 12 weeks), you don’t have to do anything. The IRS likely sent you the CP63 notice before it got a chance to process your tax return. If you filed your return more than 12 weeks ago, you should contact the IRS or refile the return.

What should I do if the missing tax return shows I owe the IRS money? 

The IRS may apply some or all of the withheld tax refund to the tax bill. You also have the option to send payment along with the tax return when you file it. 

How do I confirm which tax year is missing? 

You can access your tax records and transcripts online using an IRS Individual Online Account. 

Can I receive a CP63 notice if I already filed all my returns? 

Yes, as the IRS might have sent you the CP63 letter before it got a chance to process all of your tax returns. 

Will filing a late return automatically release my refund? 

The IRS will release the refund if you: file all missing tax returns or adequately explain why you didn’t have to file a tax return for the year the IRS claims. 

How long does it take to resolve a CP63 notice? 

Up to 12 weeks, as that’s the amount of time the IRS often needs to process any missing tax returns. 

Can the IRS seize future tax refunds? 

Yes, if the IRS determines there are other tax years with missing returns.

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