CP120 Notice: What Is It and How Should You Respond?
Summary:
The CP120 Notice from the IRS informs taxpayers that they filed a tax-exempt return, but the IRS records do not show that their organization holds tax-exempt status. This can happen if the organization has not been officially recognized as tax-exempt or if the necessary documentation was not filed. The notice provides instructions on how to resolve the issue, including submitting evidence of tax-exempt status or applying for tax-exempt recognition. Timely response is crucial to avoid potential penalties and complications with future tax filings.
Receiving a notice from the IRS can be concerning, particularly when it involves your organization’s tax-exempt status. The CP120 Notice is issued when the IRS finds that a tax-exempt return was filed but has no record of the filer’s tax-exempt status. Whether you’re managing a nonprofit, church, or other entity, this situation requires prompt action to avoid complications such as taxes owed, penalties, or delays in processing future filings. In this article, we will guide you through what a CP120 Notice is, why you received it, and how to resolve the issue quickly and effectively.
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What is a CP120 notice?
The CP120 Notice is a communication from the IRS that indicates an organization has submitted a tax-exempt return, but the IRS records do not reflect the organization’s status as tax-exempt. This situation may arise due to a failure to properly apply for tax-exempt status or submit the required documentation.
Tax-exempt organizations, such as 501(c)(3) entities, are required to apply for and maintain their tax-exempt status by filing the necessary forms with the IRS. The CP120 is issued when a discrepancy occurs between the organization’s filing and the IRS’s recognition of its status.
Pro Tip
Set up IRS account alerts online to get real-time notifications on any changes to your tax return or account. This helps you stay updated on adjustments and due dates.
Why did I receive a CP120 notice?
There are several reasons why you may receive a CP120 Notice, including:
- Failure to apply for tax-exempt status: If your organization has never submitted Form 1023 (Application for Recognition of Exemption) or Form 1024 for other types of organizations, the IRS will not recognize your organization as tax-exempt.
- Missing or incomplete documentation: Even if your organization was granted tax-exempt status, you may not have submitted the required documentation, or the IRS may have incomplete records.
- Parent organization issues: If your organization’s tax-exempt status is linked to a parent organization, the parent organization must provide a letter confirming your tax-exempt status.
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What should you do when you receive a CP120 notice?
It is important to act promptly to resolve the issue outlined in the CP120 Notice. Here’s what you need to do:
- Review the notice carefully: The CP120 Notice will explain why the IRS does not recognize your organization as tax-exempt and what documentation or action is required.
- Provide proof of tax-exempt status: If your organization is tax-exempt, you need to send the IRS a copy of the determination letter that granted you this status. This could be a letter provided to your organization or your parent organization confirming your tax-exempt status.
- Apply for tax-exempt status: If your organization has not yet been recognized as tax-exempt, you must apply by completing and submitting Form 1023 or 1024 along with the required fee. The IRS will review your application and, if approved, issue a determination letter confirming your organization’s tax-exempt status.
Pro Tip
Keep a copy of your IRS determination letter handy. This document is essential when responding to notices like CP120 and proving your tax-exempt status.
How to respond to the CP120 notice
Steps to take when responding
When you receive a CP120 Notice, you should respond promptly to avoid delays in future filings or potential penalties. Follow these steps:
- Read the notice carefully to ensure you understand why your organization is not recognized as tax-exempt.
- Gather the necessary documentation, such as a copy of the IRS determination letter confirming your tax-exempt status or documents showing your affiliation with a tax-exempt parent organization.
- Fax or mail your documents to the IRS at the address or fax number provided in the notice.
- If you need to apply for tax-exempt status, complete the appropriate application and mail it with the fee to the address specified in the notice.
What if your organization is not tax-exempt?
If you do not qualify for tax-exempt status or do not wish to apply for it, you must submit the appropriate federal income tax form. Organizations that are not tax-exempt are subject to standard tax requirements, and failure to file the proper forms could result in penalties.
What to include in your response
When responding to the CP120 Notice, be sure to include the following:
- A copy of the CP120 Notice.
- Proof of your tax-exempt status (determination letter) or documentation from your parent organization confirming your exemption.
- If you are applying for tax-exempt status, include Form 1023 or 1024, along with the appropriate fee.
What happens if you don’t respond?
Failing to respond to the CP120 Notice can lead to various consequences, including:
- Your organization may be required to pay taxes on income it otherwise wouldn’t owe if recognized as tax-exempt.
- Penalties and interest may accrue if taxes are not paid in a timely manner.
- The IRS may take enforcement action, such as levying fines or garnishing wages.
Pro Tip
File for tax-exempt status electronically through the IRS website to speed up the process and reduce errors in your application.
It is important to respond as soon as possible to avoid these potential penalties and complications.
Tips for next year
To avoid receiving a CP120 Notice in the future, consider the following:
- Ensure that your organization maintains its tax-exempt status by filing all required documentation and returns on time.
- Review IRS Publication 557, Tax-Exempt Status for Your Organization, to fully understand the application and maintenance processes.
- Consider filing your taxes electronically, which can reduce the risk of mistakes and help you find credits or deductions that your organization may qualify for.
Further support for handling CP120 notice
If you’re unsure how to proceed after receiving a CP120 Notice, you have several options:
- Consult a tax professional or attorney who specializes in nonprofit organizations and tax-exempt status.
- Visit the IRS website for more detailed instructions on how to resolve the issue.
- Contact your local IRS office or reach out to the IRS taxpayer advocate service for personalized assistance.
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Frequently asked questions
What if I believe my organization is tax-exempt but the IRS doesn’t have a record?
If you believe your organization qualifies for tax-exempt status but the IRS doesn’t have a record of it, you will need to provide documentation proving your exemption. This can include a determination letter from the IRS or a letter from your parent organization that verifies your tax-exempt status. If your organization has never applied for tax-exempt status, you must submit Form 1023 or 1024 to the IRS, along with the applicable fee, to request recognition.
Can I apply for tax-exempt status online?
Yes, in many cases, you can apply for tax-exempt status online through the IRS’s website. The IRS provides electronic filing for Form 1023, which is used to apply for 501(c)(3) tax-exempt status. Applying online may streamline the process, reducing errors and speeding up approval times. However, certain organizations may still need to file paper forms depending on their structure and requirements.
What documents do I need to submit if I received a CP120 notice?
If you received a CP120 Notice, you will need to submit a copy of the determination letter that granted your organization tax-exempt status. If your status is based on a parent organization, you will need to provide documentation from them confirming your tax-exempt standing. Additionally, if you have never applied for tax-exempt status, you will need to file the appropriate application form (Form 1023 or 1024) along with the required fee.
How long does it take for the IRS to process a tax-exempt status application?
The time it takes for the IRS to process a tax-exempt application can vary. On average, it may take between 3 to 6 months for the IRS to review and approve applications for tax-exempt status. This timeframe can be shorter if the application is complete and error-free. However, if additional information is required or there are complications, the process could take longer.
What should I do if I no longer want tax-exempt status for my organization?
If your organization no longer wants to maintain tax-exempt status, you should notify the IRS and file the appropriate federal income tax form for your organization’s new status. It is important to ensure you follow all IRS guidelines for transitioning away from tax-exempt status, including submitting any outstanding returns and ensuring compliance with federal tax obligations going forward.
Need help understanding other IRS letters and notices? Visit our comprehensive guide to IRS Letters and Notices or search for the document you received in the table below.
| CP01 | The IRS verified your claim of identity theft and will monitor your account. |
| CP01H | The IRS received a tax return with a social security number that belongs to a dead person. |
| CP02H | Money is due on an amended return based on a grant received due to Hurricane Katrina, Rita, or Wilma. |
| CP03C | You received the First-Time Homebuyer Credit for a house you purchased. |
| CP04 | You may be eligible for tax deferment because either you or a spouse served in a combat zone, a qualified contingency operation, or a hazardous duty station during the tax year specified on your notice. |
| CP08 | You may be entitled to additional money due to the Additional Child Tax Credit. |
| CP10 | Your tax return changed due to a miscalculation, and the refund you wanted to apply to an estimated tax payment has changed. |
| CP10A | Your tax return changed due to a miscalculation of the Earned Income Credit, and the refund you wanted to apply to an estimated tax payment has changed. |
| CP11 | You owe money because the IRS amended your return due to a miscalculation. |
| CP11A | Your tax return changed due to a miscalculation of the Earned Income Credit, and the refund you wanted to apply to an estimated tax payment also changed. |
| CP11M | Your tax return changed due to a miscalculation of the Making Work Pay and Government Retiree Credit, and the refund you wanted to apply to an estimated tax payment has changed. |
| CP12 | You are due a bigger refund because the IRS corrected one or more mistakes on your tax return. |
| CP12A | The IRS made changes to correct the Earned Income Credit (EIC) claimed on your tax return. |
| CP12E or CP12F | The IRS corrected a miscalculation on your return. |
| CP12M | The IRS made changes to the computation of the Making Work Pay and/or Government Retiree Credits on your return. |
| CP12R | The IRS made changes to the computation of the Rebate Recovery Credit on your return. |
| CP13 | The IRS made changes to your return due to a miscalculation. There is no refund or amount due. Your balance is zero. |
| CP13A | The IRS made changes to your return due to a miscalculation of the Earned Income Credit. There is no refund or amount due. Your balance is zero. |
| CP13M | The IRS made changes to your return due to a miscalculation of the Making Work Pay credit or the Government Retiree Credit. There is no refund or amount due. Your balance is zero. |
| CP13R | The IRS made changes to your return due to a miscalculation of the Recovery Rebate Credit. There is no refund or amount due. Your balance is zero. |
| CP14 | You owe money on unpaid taxes. |
| CP16 | The IRS made changes to your return due to a miscalculation. The refund you were due was applied to other tax debts. |
| CP21A | You owe money due to the changes you requested that the IRS make on your tax returns. |
| CP21B | You are due a refund due to the changes you requested that the IRS make on your tax returns. The money should arrive within 2 to 3 weeks. |
| CP21C | The IRS made the requested changes to your tax return. You will not receive a refund, and there is no tax due. Your balance is zero. |
| CP21E | As a result of your recent audit, the IRS made changes to your tax return, and you owe money as a result of those changes. |
| CP21I | The IRS made changes to your tax return relating to the Individual Retirement Arrangement (IRA) taxes. You owe money due to the changes. |
| CP22A | The IRS made the changes you requested, and you owe money as a result. |
| CP22E | As a result of your recent audit, the IRS changed your tax return, and you now owe money. |
| CP22I | The IRS made changes to your tax return relating to the Individual Retirement Arrangement (IRA) taxes. You owe money due to the changes. |
| CP23 | The IRS changed your return because there was a difference between the amount of estimated tax payments listed on your tax return and the amount actually posted to your account. You owe taxes due to these changes. |
| CP24 | The IRS changed your return because there was a difference between the amount of estimated tax payments listed on your tax return and the amount actually posted to your account. This resulted in an overpayment of estimated taxes. |
| CP24E | The IRS changed your return because there was a difference between the amount of estimated tax payments listed on your tax return and the amount actually posted to your account. This resulted in an overpayment of estimated taxes. |
| CP25 | The IRS changed your return because there was a difference between the amount of estimated tax payments listed on your tax return and the amount actually posted to your account. You are not due a refund, nor do you owe any money. Your balance is zero. |
| CP31 | You need to update your address because your refund check was returned to the IRS. |
| CP45 | The IRS was unable to apply your overpayment to your estimated tax as you requested. |
| CP49 | The IRS used all or part of your refund to pay a tax debt. |
| CP53 | Your refund check will be sent by mail because the IRS can’t provide your refund through direct deposit. |
| CP57 | The bank declined your payment, so the IRS was unable to draft funds from your bank account. |
| CP71 | A reminder of the amount you owe in tax, penalty, and interest. |
| CP71A | A reminder of the amount you owe in tax, penalty, and interest. |
| CP71C | A reminder of the amount you owe in tax, penalty, and interest. |
| CP71D | A reminder of the amount you owe in tax, penalty, and interest. |
| CP88 | The IRS is holding your refund because you haven't filed one or more tax returns, and it believes you will owe tax. |
| CP90 | The IRS is notifying you of its intent to levy certain assets for unpaid taxes. You have the right to dispute the levy in a Collection Due Process hearing. |
| CP91 | The IRS will levy up to 15% of your social security benefits for unpaid taxes. |
| CP120 | The IRS needs documentation of your tax-exempt status. |
| CP120A | Your organization’s tax-exempt status has been revoked because it failed to file a Form 990 series return for three consecutive years. |
| CP130 | You may no longer need to pay the Alternative Minimum Tax (AMT) because your tax return filing requirements changed. |
| CP152 | The IRS received your return. |
| CP153 | The IRS will send your refund by mail because your direct deposit did not go through. |
| CP161 | You have an unpaid balance due to the IRS. |
| CP166 | Your monthly payment to the IRS did not go through due to insufficient funds in your bank account. |
| CP178 | You may no longer owe excise tax because your tax return filing requirements changed. |
| CP231 | You need to update your address because your refund was returned to the IRS. |
| CP259 | You did not file the business tax return identified in the notice. |
| CP259A | You should have filed these forms but did not – Form 990/990-EZ, Return of Organization Exempt From Income Tax, or Form 990-N (e-Postcard). |
| CP259B | The IRS requires you to file these forms but did not – Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation. |
| CP259C | The IRS believes that you are a private foundation, but did not file the required Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation. |
| CP259D | You must file this form, but you did not – Form 990-T, Exempt Organization Business Income Tax Return. |
| CP259E | You should have filed this form, but you did not – Form 990-N (e-Postcard) or Form 990/990-EZ, Return of Organization Exempt From Income Tax. |
| CP259F | The IRS requires you to file this form but did not – Form 5227, Split-Interest Trust Information Return. |
| CP259G | The IRS requires you to file this form, but you didn’t – Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations. |
| CP259H | As a tax-exempt political organization, you must file this form, but you did not – Form 990/990-EZ, Return of Organization Exempt From Income Tax. |
| CP276A | You submitted your tax liability schedule incorrectly. The IRS typically charges a Federal Tax Deposit (FTD) penalty for this but did not this time. |
| CP276B | The IRS did not receive the correct amount of tax deposits. It normally charges a Federal Tax Deposit (FTD) penalty but did not this time. |
| CP297 | The IRS is notifying you of its intent to levy certain assets for unpaid taxes. You have the right to dispute the levy at a Collection Due Process hearing. |
| CP297A | The IRS has levied your assets for unpaid taxes. You have the right to dispute the levy at a Collection Due Process hearing. |
| CP298 | The IRS notifying you of its intent to levy up to 15% of your social security benefits for unpaid taxes. |
| CP501 | You have a balance due on one of your tax accounts. |
| CP503 | You have an unpaid balance on one of your accounts, and the IRS has not heard from you. |
| CP504 | You have an unpaid amount due on your account. If you do not pay immediately, the IRS will levy your state income tax refund to apply it to the amount you owe. |
| CP504B | You have an unpaid amount due on your account. If you do not pay immediately, the IRS will levy certain property or rights to property to apply it to the amount you owe. |
| CP521 | A reminder that you have an installment agreement payment due. |
| CP523 | You have defaulted on your payment agreement. Therefore the IRS is terminating the agreement and will levy your assets. |
| CP601 | Usted tiene un saldo pendiente de pago (dinero que le debe al IRS) en una de sus cuentas contributivas. |
| CP603 | No hemos recibido respuesta de parte de usted y todavía tiene un saldo sin pagar en una de sus cuentas contributivas. |
| CP604 | Usted tiene un saldo sin pagar en su cuenta. De no pagar esta cantidad inmediatemente, el IRS embargará cualquier reembolso de impuestos estatales al que tenga derecho y aplicarlo al pago de su deuda. |
| CP604B | Usted tiene un saldo sin pagar en su cuenta. De no pagar esta cantidad inmediatemente, el IRS embargará ciertas propiedades o derechos de propiedad y lo aplicará al pago de su deuda. |
| CP621 | Este aviso es para notificarle que usted tiene un plan de pagos a plazos vencido. Por favor, envíe el pago inmediatamente. |
| CP623 | Este aviso es para informarle nuestra intención de cancelar su plan de pagos a plazos y confiscar (embargar) sus bienes. Usted incumplió en su acuerdo. |
| CP711 | Nosotros realizamos cambios a su planilla debido a que entendemos que hubo un cálculo erróneo. Como resultado de estos cambios, usted adeuda dinero por sus contribuciones. |
| CP721 | Hicimos el(los) cambio(s) que usted solicitó a su declaración de impuestos para el año tributario que aparece en su aviso. Como resultado de éste(estos) cambio(s) usted debe dinero en sus impuestos. |
| CP722 | Hicimos el(los) cambio(s) que usted solicitó a su declaración de impuestos para el año tributario que aparece en su aviso. Como resultado de éste(estos) cambio(s) usted debe dinero en sus impuestos. |
| CP771 | Usted recibió este aviso para recordarle sobre la cantidad que adeuda en contribuciones, multas e intereses. |
| CP772 | Usted recibió este aviso para recordarle sobre la cantidad que adeuda en contribuciones, multas e intereses. |
| CP773 | Usted recibió este aviso para recordarle sobre la cantidad que adeuda en contribuciones, multas e intereses. |
| CP774 | Usted recibió este aviso para recordarle sobre la cantidad que adeuda en contribuciones, multas e intereses. |
| CP959 | Usted no radicó su planilla de contribución de negocios identificada en este aviso. |
| CP2000 | The income or payment information on file doesn’t match your tax return. The discrepancy may result in an increase or decrease in your tax due. |
| CP3219A | The IRS has received information that is different from what you reported on your tax return. This may result in an increase or decrease in your tax. |
| CP3219N | The IRS didn’t receive your tax return, so it calculated your return based on the information received from employers, financial institutions, and others. If you want to challenge the proposed tax, you have 90 days from the date of this notice. If you are outside the country, you have 150 days. |
| Letter 0012C | The IRS needs additional information to process your tax return. |
| Letter 0484C | The IRS wants a completed |
| Letter 0525 | Updates you on proposed changes after an IRS examination. Any changes are explained and details the refund due or taxes owed. |
| Letter 531 | IRS Notice of Deficiency. The information the IRS received about you was different from what you reported on your return. |
| Letter 0668D(LP 68) | The IRS released their levy. |
| Letter 0549C | Your tax bill was paid. |
| Letter 0681C | The IRS accepted your payment proposal. However, this is not a formal Installment Agreement. |
| Letter 0757C | You did not adhere to the terms of your Installment Agreement. |
| Letter LT 11 | The IRS plans to seize your property or rights to property. |
| Letter 1058 | The IRS has not received your payment. It plans to seize your property or rights to property. |
| Letter 1615 (LT 18) | You must respond to the IRS within 10 days of this notice regarding past due tax returns. |
| Letter 1737 (LT 27) | Complete and sign Form 433F, Collection Information Statement. |
| Letter 1961C | Your application for a Direct Debit Installment Agreement was declined. It explains why and what you need to do to qualify. |
| Letter 1962C | Your application for a |
| Letter 2050 (LT 16) | The IRS is trying to collect unpaid taxes from you from returns that have been filed or from returns that have not been filed. |
| Letter 2257C | The IRS is providing the payoff amount that you requested. |
| Letter 226-J | An IRS letter to large employers notifying them that they may be liable for an Employer Shared Responsibility Payment (ESRP). |
| Letter 2271C | A request for an Installment Agreement has been approved. It explains the fees and how to qualify for a Low Income Fee Reduction. The letter may also request missing information. |
| Letter 2272C | An IRS letter explaining why your request to pay the balance due in installments was declined. |
| Letter 2273C | A confirmation letter of your request to pay the balance due in installments. It contained the amount to pay, fees charged, and where to send payment. Instructions on how to apply for the Low Income Fee Reduction included. |
| Letter 2318C | A response to a request to pay taxes due to payroll deductions. It also explains the fees that are charged. |
| Letter 2357C | The IRS is admitting that it did not send you the balance due notices that it should have. |
| Letter 2603C | The IRS accepted your installment agreement. The IRS will file a Notice of Federal Tax Lien on your personal property. |
| Letter 2604C | The IRS has accepted your request for installment payments. This IRS letter provides the monthly payment, the address where to send it, and the fees charged. The letter also provides instructions on how to apply for the Low Income Fee Reduction. |
| Letter 2761C | The IRS is requesting your combat zone service dates to ensure that it provides you with the special provisions and protection of the combat zone deferment. Copies of military orders or other documentation to support your time served may be requested. Civilians working in support of the Armed Forces may be required to provide a Letter of Authorization or a letter from their employer. |
| Letter 2789C | An annual reminder notice, as required by law, of the balance due to the IRS. It explains that penalties and interest continue to accrue until the balance is fully paid. |
| Letter 2840C | Confirms your Installment Agreement request and includes the payment amount and due date. This IRS letter explains the fees charged for paying monthly and explains how to apply for the Low Income Fee Reduction (if you qualify). |
| Letter 3030C | Provides an explanation of the tax, penalty, and interest still due on your account. |
| Letter 3127C | A confirmation of your request to make a change to your Installment Agreement. This IRS letter explains the fees for the change. Changes can be to the payment amount or due date, or it can include additional liabilities. |
| Letter 3174 | A reminder of taxes due after the IRS has sent a Notice of Intent to Levy. |
| Letter 3217C | The IRS has accepted your request to pay the balance in installments. This IRS letter provides your payment amount, the due date, and fees charged. The letter also provides instructions on applying for the Low Income Fee Reduction (if you qualify). |
| Letter 3228 (LT 39) | A request to pay the balance due within 10 days using the envelope provided. |
| Letter 3500 | The IRS has received your documents, and it needs additional time to review them. |
| Letter 3572 | Your Federal Income Tax Return has been selected for examination. The IRS auditor requests that you call to schedule an audit appointment. |
| Letter 4883C | The IRS received your federal income tax return but needs more information to verify your identity in order to process your tax return accurately. |
| Letter 4903 (LT 26) | You must file your tax returns immediately. The IRS has previously contacted you, but it did not receive a response. |
| Letter LP 47 | The IRS is trying to locate the person identified in the letter and is requesting that you provide their new address. |
| Letter LP 59 | The IRS has not received a response to the notice of levy it previously sent. |
| Audit Letter 2205 | The IRS manages audits either by mail or through an in-person interview to review your records. The interview may be at an IRS office (office audit) or the taxpayer’s home, place of business, or accountant’s office (field audit). |
| Letter 915 | You recently underwent an audit, and the IRS informs you that you now owe taxes. |
Key takeaways
- The CP120 Notice is issued when the IRS does not recognize an organization’s tax-exempt status despite receiving a tax-exempt return.
- Organizations must provide proof of their tax-exempt status or apply for recognition by completing Form 1023 or 1024.
- Responding to the notice quickly can prevent penalties, taxes, and delays in future filings.
- If you do not qualify for tax-exempt status, you must file the appropriate federal income tax form.
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