One of my clients recently received an IRS Notice CP81 stating that the IRS had a credit balance on their account but did not have a record of the tax return for that year.

Needless to say, receiving a letter from the IRS saying there is money on your account while at the same time claiming your return was never filed can be confusing.

The notice said that the IRS had a credit of approximately $ 5,344 on her account, but at the same time the IRS claimed they did not have a tax return on file for that year.

Her question was simple:

“What do I do with this?”

If you receive a notice like this, don’t panic. Despite how alarming IRS letters can look, this particular notice is often much less serious than people think.

In simple terms, the IRS is saying:

“We have money on your account, but we don’t have a tax return to match it to.”

The credit could be from withholding, estimated tax payments, an extension payment, or another payment made during the year.

The problem is that the IRS cannot determine whether you are entitled to a refund until they receive and process the tax return for that year.

Why Does This Happen?

Over the years, I have seen several reasons:

• The tax return was never filed.
• The taxpayer thought the return was filed, but it was never successfully transmitted.
• The return was mailed but never received by the IRS.
• The IRS received a payment but never received the return.
• The return was filed years ago, but there was a processing issue.

Many people are surprised when this happens because they genuinely believe the return was filed.

What Should You Do First?

Before spending money hiring someone to investigate, I usually recommend logging into your IRS online account and downloading two documents:

• Tax Return Transcript
• Account Transcript

Many times those two transcripts answer the question within a few minutes.

The transcripts will often show whether the IRS has a return on file and whether the credit mentioned in the notice has been posted to your account.

Don’t Ignore the Notice

One important point that many taxpayers miss is that refund claims are subject to strict deadlines.

If a return is not filed within the required time period, you can lose the right to claim a refund even if the IRS is holding money that belongs to you.

That is why I never recommend putting these notices in a drawer and forgetting about them.

The good news is that a CP81 notice is usually fixable.

In many cases, the solution is simply determining whether the return was filed and, if not, preparing and filing the missing return.

While every situation is different, this is not the type of notice that should cause panic. It is, however, the type of notice that should be addressed sooner rather than later.

If you receive a CP81 notice and are not sure what it means, start by pulling your IRS transcripts. Very often that first step will tell you exactly what needs to happen next.

Every situation is different, but the sooner the issue is addressed, the easier it is to protect any refund or credit that may belong to you.

Don’t wait – Schedule a consultation today, and let us help you.

Written by Katerina Donckels, CPA. About Katerina