CP72 Notice: What it Means When the IRS Flags Your Return
Summary:
IRS Notice CP72 is issued when the IRS believes that a taxpayer has filed a frivolous tax return. This notice comes with a hefty $5,000 penalty, and taxpayers may not initially know why they are being penalized. To dispute the penalty, taxpayers can file an appeal or, in some cases, pay the penalty and request a refund. Navigating this process can be complex, and failing to respond could result in significant financial consequences. In this article, we’ll explain what a CP72 notice is, how to respond, and what your options are for resolving the issue.
Receiving IRS Notice CP72 can be unsettling. This notice is issued when the IRS determines that your tax return contains frivolous information, meaning it does not meet the agency’s standards or follows established rules. What makes CP72 particularly concerning is that it comes with a substantial $5,000 penalty, and the IRS doesn’t have to provide the exact reasons for this determination upfront. You’re left to figure out what went wrong, often without immediate access to the necessary information. In this article, we’ll dive into what IRS Notice CP72 is, why it’s issued, and how you can appeal or resolve it.
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What is IRS notice CP72?
IRS Notice CP72 informs taxpayers that the IRS has flagged their tax return as frivolous. According to the IRS, a frivolous return is one that either omits critical information or contains positions that do not have a basis in law, such as arguments against paying taxes entirely.
The notice is not to be taken lightly because, in addition to marking your return as invalid, it includes an automatic penalty of $5,000. You do not get a hearing or a trial before the penalty is assessed, making this a unilateral decision by the IRS. Unfortunately, the exact reason for the penalty is not always provided, leaving the taxpayer to investigate why their return was marked frivolous.
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 CP72 notice?
There are several reasons why you might receive a CP72 notice. The IRS typically issues this notice if they believe your tax return contains frivolous information or claims that do not comply with tax law. Some examples include:
- Arguments that taxes are unconstitutional.
- Claims that income is not taxable under federal law.
- Incomplete or misleading tax forms that omit required information.
The IRS does not tolerate positions or arguments that challenge the authority of the tax system. Filing such a return can trigger the CP72 notice and the associated $5,000 penalty. It is important to understand that the penalty applies automatically, and the IRS is not required to give you detailed reasoning behind their assessment upfront.
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What should you do if you receive IRS notice CP72?
If you’ve received a CP72 notice, your first step should be to read the notice carefully. The IRS may not always specify which part of your return they find frivolous, so you will need to review your tax return and any supporting documentation to identify possible issues.
Here are the steps you should take:
- Review your tax return: Check for any positions or claims that could be considered frivolous. If you are unsure, seek advice from a tax professional.
- Consider amending your return: If you spot an error or believe the IRS has flagged your return incorrectly, you may want to file an amended return to correct any mistakes.
- File an appeal: If you believe the CP72 notice was issued in error, you have the right to appeal the penalty through a Collection Due Process Appeal (CDP). This allows you to dispute the penalty and provide evidence to support your case.
- Pay the penalty and request a refund: Another option is to pay the penalty and then file Form 843, Claim for Refund, to request a refund. If the IRS denies your claim, you may be able to take your case to U.S. District Court.
Pro Tip
Always respond to IRS notices by the deadline indicated on the notice to avoid additional penalties or enforcement actions. Request more time if needed, but never let the deadline pass without a response.
How to appeal a CP72 notice
Filing an appeal can be a complex process, but it is often the best route if you want to dispute the frivolous return penalty. Here’s how you can proceed:
- Collection Due Process (CDP) Appeal: This type of appeal allows you to challenge the IRS’s determination before they take collection action. You’ll need to file Form 12153, Request for a Collection Due Process or Equivalent Hearing. In this appeal, you’ll present your case, arguing why your return was not frivolous.
- Request a hearing: If the IRS grants your request, you will have a chance to present evidence that your tax return was valid and that the penalty was issued in error.
- Provide compelling evidence: The IRS will not reverse its determination without strong evidence. You will need to gather documents or records that support the accuracy and legality of your return.
The IRS rarely reverses frivolous penalty determinations, so it is important to provide as much documentation as possible and potentially consult with a tax professional.
Paying the penalty and requesting a refund
If you want a faster resolution, you can pay the $5,000 penalty and then request a refund by filing Form 843, Claim for Refund. Here’s how you can do this:
- Pay the penalty: You’ll need to pay the $5,000 frivolous return penalty in full (or a portion of it).
- File Form 843: Once you’ve paid the penalty, submit Form 843 to the IRS, explaining why you believe the penalty was unwarranted and requesting a refund.
- Sue the IRS if necessary: If the IRS does not act on your claim or denies the refund, you have the right to sue the IRS in U.S. District Court.
Pro Tip
Keep detailed records of all communications with the IRS, including copies of notices, letters, and any documentation you send. This will be crucial if you need to dispute the penalty or file an appeal.
How to avoid frivolous return penalties in the future
To avoid receiving another CP72 notice or facing frivolous return penalties in the future, follow these guidelines:
- File accurate returns: Ensure that all the information on your tax return is accurate and complete.
- Avoid unsubstantiated claims: Do not include positions that challenge the legality of taxes or make unsupported arguments that your income is not taxable.
- Work with a professional: If you have complex tax issues, it is a good idea to work with a certified tax professional who can help you avoid errors.
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Frequently asked questions
What should I do if I disagree with the CP72 penalty?
If you disagree with the CP72 penalty, the first step is to carefully review your tax return and the reasons why the IRS deemed it frivolous. You can file a Collection Due Process (CDP) Appeal by submitting Form 12153, where you can argue why the penalty is unwarranted. You will need to provide compelling evidence to support your case. If you are unsure how to proceed, consider consulting with a tax professional for guidance.
Can I request more time to respond to a CP72 notice?
Yes, you can request more time to respond to the CP72 notice by contacting the IRS using the phone number provided in the notice. It is important to act before the deadline indicated in the notice to avoid additional penalties or interest. If you are in the process of filing an appeal or gathering evidence, informing the IRS about your situation could prevent any further collection actions.
Is the $5,000 penalty for frivolous returns negotiable?
The $5,000 penalty for filing a frivolous return is generally non-negotiable unless you successfully dispute it through an appeal or court ruling. The IRS imposes this penalty automatically, but you may be able to reduce or remove it if you provide valid evidence that the return was not frivolous. In some cases, paying the penalty and then requesting a refund through Form 843 is an option.
What happens if I ignore the CP72 notice?
Ignoring the CP72 notice can lead to serious consequences. The IRS will assume that you agree with their assessment, and the $5,000 penalty will become final. The IRS may take further actions to collect the penalty, such as garnishing your wages or placing a lien on your property. Additionally, ignoring the notice could increase scrutiny on your future tax filings, making it more difficult to resolve any future issues.
Can I seek professional help to handle a CP72 notice?
Yes, seeking professional help is highly recommended if you are dealing with a CP72 notice. A certified tax resolution specialist, CPA, or tax attorney can help you understand why the notice was issued and advise you on the best course of action. They can assist in preparing an appeal, filing any necessary forms, and representing you in case of further disputes with the IRS.
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 IRS issues Notice CP72 when it determines that a taxpayer’s return is frivolous.
- Taxpayers face a $5,000 penalty without a hearing or trial, making prompt action critical.
- Options for resolving the penalty include filing an appeal, paying the penalty, or requesting a refund.
- Working with a tax professional can help navigate the complexities of dealing with frivolous return penalties.
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