IRS Notice CP63: Taxpayer Guide

What to Do If the IRS Holds Your Tax Refund for Unfiled Taxes

Tax refunds are exciting to get – and often financially critical, but they don’t always come as expected. IRS Notice CP63 informs you that the IRS is holding your tax refund due to unfiled taxes. To get the agency to release the hold, you typically need to file your return, prove that you already filed, and explain why you don’t need to file.

A tax attorney can help you deal with unfiled returns, IRS notices, tax debt, or any other problems. To learn more, contact us at Seattle Legal Services for a free consultation.

Key takeaways

• What is CP63? This is a refund hold notice due to unfiled tax returns.
• When does the IRS send this notice? If a taxpayer claims a refund, but the IRS believes they may owe taxes from a previous tax year.
• How do you respond to CP63? File your unfiled returns, contact the IRS to let them know you didn’t need to file, or reach out to a tax attorney for help.
• Risks of ignoring CP63 – the IRS may calculate the tax you owe and start the collections process.

What Does IRS Notice CP63 Mean?

This notice means that the IRS is holding your tax refund because you have unfiled taxes in a previous year. For example, say that your 2026 tax return shows a refund due, but you never filed your 2025 tax return. If the IRS thinks that you may owe tax from 2025, they will hold on to the 2026 refund until you reach out to the agency.

Is this legal? Yes, the IRS has the right to hold tax refunds, and if there are unresolved issues, the agency can hold the refund for an unlimited amount of time. However, they must pay you interest on the refund if they don’t disburse it right away.

Why does the IRS think I owe money from a previous tax year? At this point, the IRS does not know for sure whether or not you owe money, but they believe you may owe taxes because they’ve received income documents (e.g., W2s, 1099s, etc) in your name for a previous tax year where there is no tax return on file.

What to Do When You Receive Notice CP63

Review the notice carefully and make sure you understand what it’s saying, and note the deadline. Then, your next steps vary based on the situation.

If you need to file a tax return

Get your income documents together and file your return. Most online tax prep software lets you file the current year and the last two years. You can file older returns on paper – the CP63 notice has a phone number so you can call the IRS to request the forms you need. Alternatively, have a tax pro help you.

An experienced tax professional can help you get caught up on your unfiled tax returns. If needed, they can also contact the IRS to let them know if the returns are going to be filed past the deadline on the CP63 notice. A tax attorney can also help if you’ve already filed or you don’t need to file.

If you’ve already filed a tax return

If you already submitted a return for the period when the IRS says you didn’t file, the right response depends on when you filed.

• 8 weeks or less ago – You don’t need to do anything. The CP63 was probably sent before the IRS processed your return, but to be on the safe side, you may want to check your IRS online account to make sure that you filed. Otherwise, look for confirmation of filing in your tax prep software or contact the person who filed your return.
• More than 8 weeks ago – There may be a problem with processing your return. Contact the IRS to make sure they have received your tax return. To save time, start by checking in your online account. If that doesn’t work, you can call the IRS, but be prepared for long hold times. A tax attorney can also check to see if the IRS has received your return.

If you were not required to file a tax return

You should contact the IRS and let them know that you were not required to file. You may need to prove that you were not required to file, especially if the IRS has income documents suggesting that you need to file.

To give you an example, imagine the IRS has 1099-NECs in your name showing $30,000 of self-employment income. The rules say that you must file if you have more than $400 in net self-employment income, but due to your business expenses, you know that you’re under that threshold. Unfortunately, the IRS does not know that, so they may think that you need to file. You need to reach out and explain why you don’t need to file, or they’ll use those documents to assess tax against you.

Note that even if you’re not required to file a tax return, you’re still allowed to file. You may want to file the return – just to get out of the situation. Again, however, consider consulting with a tax attorney to ensure you’re making the right decision.

Deadline to Respond to CP63

The deadline is usually in the “What you need to do” section of the notice. It’s usually not very long. Often, the IRS only gives you 10 days to respond to this notice. That’s 10 days from the notice date at the top of the letter, which is when the IRS sent the notice. So, by the time you receive CP63, you may have just a few days to respond.

What to Expect After You File Your Tax Return

Once the IRS receives your tax return, it’ll review it, which can take up to 12 weeks. Then, if you owe, they’ll take that money out of your refund, and they’ll send you any remaining amount. They’ll also send you a letter explaining how much they took and why.

If your refund doesn’t cover the full balance due on your tax return, the IRS will apply the full refund to your tax liability. Then, they’ll send you collection notices, demanding payment of the remaining balance and explaining how to set up payments. If you don’t set up payments or make other arrangements (for example, applying for hardship relief), the agency will continue to send notices, and eventually, they may garnish your wages or levy your assets.

What If You Don’t Respond to Notice CP63

The notice will outline what happens if you don’t respond, but here’s a breakdown:

• The IRS will continue to hold your tax refund.

• The IRS may determine how much tax you owe – this is called a substitute for return; they use the information on hand, and you generally don’t get credits, exemptions, or business deductions.
• The IRS will send you a Notice of Deficiency – that gives you 90 days to respond (150 days if you’re out of the country), and if you don’t respond, the tax assessment will become final.
• The IRS will start collecting the tax debt. IRS collections typically start slowly with demands for payment. But if you don’t pay, the agency will quickly escalate to involuntary collections such as wage garnishments, bank levies, and asset seizure.
• The IRS will keep future tax refunds. Unfortunately, when you owe a tax debt to the IRS, they will keep all tax refunds and apply them to your balance owed. Even if you set up payments, the agency will still take refunds and apply them to your tax debt. They can even take state refunds.

To minimize the risk of losing tax refunds due to tax debt, talk with a tax expert about how to reduce your withholding so that you get as much money as possible in your paycheck and are less likely to get a refund when you file your tax returns.

Tax Debt Resolution Options – What If You Owe When You File

If you deal with your unfiled tax returns and end up with a tax bill, there are a few options. All of these resolution options stop IRS collection actions against you – the IRS actually pauses most collection actions as soon as you put in an application, but that can vary if there’s an active garnishment or levy in progress.

Here are the main tax debt resolution options:

• Installment agreement – make monthly payments on your tax debt for up to 10 years. No financial statements are required if you owe less than $50,000, have filed the last five years of returns, and are current with estimated quarterly taxes. If you owe over that amount, you can still get payments, but you may need to provide financial details.
• Offer in compromise – settle your tax debt for less than owed, based on the equity in your assets and your disposable income. You must provide detailed financial information to qualify, and it’s best to work with a tax attorney because the rejection rates are very high for this program.
• Partial payment agreement – make small monthly payments based on your disposable income. You don’t need to repay any tax debt remaining when the collection statute expires (about 10 years after you file, but may be longer if you take actions that pause and restart the clock). You must provide detailed financial information to qualify, and you may need to update your financials every two years to prove you’re paying the most you can afford.

If you’re filing a late return, you’ll probably incur failure to file and failure to pay penalties. Consider applying for penalty abatement to save some money. You should automatically qualify for first-time abatement if this was the first time you’ve filed late in a few years. Otherwise, you may qualify for abatement under the IRS’s reasonable cause provisions, which basically say that something out of your control prevented you from filing on time.

Get Help With IRS Tax Problems Now

Dealing with the IRS can be tricky – and unfortunately, the wrong move can put you at risk of penalties or deeper into tax debt. To protect yourself, you need to work with an experienced tax resolution attorney. At Seattle Legal Services, we focus on helping taxpayers get out of tax debt and deal with the IRS. Don’t wait – contact us for help today.

FAQs About the CP63 Refund Hold Notice

When will I get my tax refund if the IRS sent a CP63?

You’ll get your tax refund after you file your unfiled returns or contact the IRS to correct the mistake. However, if you file returns that show a tax liability due, the IRS may keep some or all of your tax refund and apply it to your tax liability.

How long can the IRS hold my refund?

By law, the IRS can hold your refund indefinitely if you have unfiled returns and they believe that you owe. However, if you file and prove that you don’t owe, the agency will usually release your refund in 90 days.

Can the IRS take my state refund?

The IRS cannot take your state refund for unfiled taxes. However, if the agency determines how much you owe and you don’t dispute the Deficiency Notice, the IRS can then take your state tax refund. Your state can also take your IRS refund if you owe the state but not the IRS.

Why does the IRS hold tax refunds?

The IRS may also hold tax refunds if they want extra time to review your tax return or if they suspect identity theft on your account. In these situations, they’ll also send a notice.

Does a refund hold mean the IRS is keeping my refund?

No, a hold means the IRS is delaying your refund until you file a return and they figure out whether or not you owe tax. When the IRS keeps a refund for unpaid taxes, that’s called an offset, and they’ll send you a notice letting you know which debt they applied the refund to.