What the notice means
The IRS page states the position: “We show that you are required to file a tax return for the tax periods indicated on your notice but haven’t.” The notice names the form and the period. A business with several missing returns gets several notices; the IRS FAQ says “a notice is mailed for each tax form and tax period the IRS shows as delinquent.”
The filing requirement usually traces back to the EIN application. The IRS FAQ explains: “When you apply for an EIN, filing requirements are established for specific types of returns to be filed,” and when a return is not filed “the IRS considers it to be delinquent and sends a notice requesting the return be filed.” A corporation that checked the employment tax box on Form SS-4 and never hired anyone will keep receiving CP259s for Form 941 until the requirement is closed.
IRM 5.19.22.3.1 says the CP259 package “will contain Letter 3164, Third Party Contact, Notice 609, Privacy Act Notice, and a return envelope.” The Letter 3164 is the IRC 7602(c) advance notice that the IRS may contact third parties, which is routine for this program and not a sign the case has been assigned to anyone yet.
Why the client got it
Case creation is systemic. IRM 5.19.22.3.1 describes the Business Masterfile Case Creation Nonfiler Identification Process: “The case creation process prioritizes and identifies productive inventory using third party data for BMF nonfiler cases,” and “Potential BMF RD modules are identified and created 16 weeks after filing due date of each specific return type.” Select codes on the module reflect the last income the entity reported.
Common causes a practitioner will recognize: the return was filed under a different EIN or name (a merger, a new entity, a payroll provider's error); the business closed without a final return and without closing the account (see closing a business with the IRS); a Form 941 requirement exists for an entity with no employees; a partnership or S corporation stopped filing after the last tax year with activity; or the return was e-filed and rejected. The IRS page says a return filed in the last four weeks under the same name and EIN means the notice can be disregarded.
Deadlines and what happens if they pass
| Primary code | First notice | Then | Then |
|---|---|---|---|
| PC-A | CP259 (CP959 Spanish) | CP518 or CP618 if not resolved in about 10 weeks | Collection enforcement: ACS, queue, Collection Field function or 6020(b) |
| PC-B | CP259 | If unresolved the case is suppressed | No further systemic notice |
| PC-X | CP259 | Moves to treatment stream after about 5 weeks | Some cases bypass ACS and go straight to the field |
IRM 5.19.22.3.1 gives the standard path for PC-A modules: “Generally, original notice is not resolved within 10 weeks, then a CP 518 or CP 618 (Spanish version) is issued,” and “Generally, if CP 518 or CP 618 (Spanish version) is not resolved, then case moves to Collection enforcement, i.e., ACS, Queue, Collection Field Function or 6020(B).” IRM 5.19.22.5.1.1 puts the status change in cycles: “The module goes into TDI Status 03, 10 cycles after the issuance of the CP 518, a total of 20 cycles from the issuance of the first notice.”
The money clocks are the usual ones. For a return that would show tax, the failure to file penalty runs from the due date. For partnerships and S corporations the per-partner penalty under IRC 6698 or 6699 accrues for up to 12 months whether or not any tax is due; see CP162 and the 6698 penalty. Employment tax non-filers face a return prepared by the IRS: IRM 5.19.22.5.3.1.3 tells employees to warn that “Form 940, Form 941, Form 943 and Form 944 employment returns may be processed under IRC 6020(b), if not filed voluntarily.”
How to respond
- Identify the form and period on each notice and check the account transcript for the module. A posted TC 150 under a different EIN or name is the most common explanation for a filed return that still draws a CP259.
- If the return is due, file it. The IRS page says to e-file with all required schedules if eligible, or file a paper return. IRM 5.19.22.5.3.1.3 has employees tell taxpayers to “sign and date” the return, use the current address and include all schedules, and warns that although the return can be faxed to 855-800-5944, “faxing the return may delay processing of the return.” Mail to the Submission Processing address for the state unless the notice says otherwise.
- If no return is required for the period, complete the Response form enclosed with the notice and mail it in the envelope or fax it to 855-800-5944. State why: no employees, no activity, final return already filed, filed under another EIN, or business ceased on a stated date. The IRS FAQ confirms that a period with no employees or activity does not require a return but “You still need to respond to this notice.”
- Consider calling instead. IRM 5.19.22.5.3 tells Accounts Management employees who take a not-liable call to input the closing code and “Advise the caller they do not need to respond in writing to the notice as the inquiry has been closed based on their oral statement.” Document the call, the employee's name and ID, and the closing reason.
- If deposits or payments were made for a period with no liability, file a signed return showing them. The IRS FAQ says a return is required to get those credits refunded.
- If the business has closed, close the account too: final returns with the final box checked, and a letter to close the EIN account so the filing requirements stop generating notices.
- Scope the other periods. The six-year enforcement policy in IRM 5.1.11.7.1 applies to business returns as well; a single CP259 for a quarter of Form 941 usually means the surrounding quarters are also open.
IRM 5.19.22.5.3.1 lists the responses the IRS expects and says each must be verified by research before the module is closed, including CC IRPTRL for business income reported to the IRS and CC BMFOL for W-2/W-3 data. A “no activity” statement for a period in which Forms 1099 or W-2 were filed under the EIN will not close the case; expect a request for the return instead.
What the IRS does next
A filed return posts and closes the module. A not-liable response, once verified, is closed with a TC 59X and closing code; the IRM procedures at 5.19.22.5.3.1.1 cover the common statements (no longer have employees, no activity, filed under another name or EIN). If research shows the business is liable, IRM 5.19.22.5.3.1.3 has CSCO “Instruct the taxpayer to file and set a deadline date for 30 days, with a follow up date 45 days to take next action, allowing mail time,” by letter (Letter 2255-C or 2284-C), with the 6020(b) warning for employment returns. IRM 5.19.22.5.3.1 also notes that employees “are not required to request a return for the current processing year until 20 weeks past the Return due date (RDD).”
After the CP518, an unresolved module enters TDI status 03. From there the options are the Automated Collection System (which may send an LT16), the collection queue, assignment to a revenue officer, or the Automated 6020(b) program for Forms 940, 941, 943 and 944, which IRM 5.19.22.2 says is covered by IRM 5.18.2. A 6020(b) employment tax return is assessed without deficiency procedures, so the practical remedy is to file the actual return and have the assessment adjusted. Unpaid employment tax also brings trust fund recovery penalty exposure for responsible persons.
Related notices
- CP518: the final delinquency notice (individual and business versions).
- CP59: the individual equivalent of the CP259.
- CP162: the late filing penalty for a partnership or S corporation return once it is filed.
- Letter 3164: the third party contact notice enclosed with every CP259.
- LT16: the ACS letter that often follows status 03.
Questions practitioners ask
The business has no employees. Why is it getting CP259s for Form 941?
A Form 941 filing requirement was set when the EIN was issued or when a prior return was filed. Respond on the Response form or by phone that the business has no employees and state the date it last had any; the IRS closes the requirement after research. Filing a final Form 941 is the cleanest fix.
Can a phone call really close it?
IRM 5.19.22.5.3 directs Accounts Management to close stand-alone delinquency modules on oral statement when the caller says the business is not liable, documenting the caller's name, position and reason. Keep your own record of the call.
Is there an appeal?
No. The CP259 proposes nothing. If the IRS later prepares a Form 941 under IRC 6020(b), the remedy is to file the correct return and request adjustment; penalties can be contested through the normal abatement and Appeals routes.
Will the IRS prepare a Form 1120 or 1065 for us?
The Automated 6020(b) program covers employment tax returns (Forms 940, 941, 943, 944). Income tax non-filers are handled through ACS, the queue or a revenue officer, who can also secure a return under 6020(b) in the field.
Does the enclosed Letter 3164 mean a revenue officer is involved?
No. IRM 5.19.22.3.1 says every CP259 contains Letter 3164. It is the advance third party contact notice required by IRC 7602(c), issued because the program may contact payers or others if the business does not respond.