The CP2566 means the IRS gave up waiting for you to file and did it themselves. They used the income information reported by your employers, banks, and clients to build a Substitute for Return. The result is a proposed tax assessment that is almost guaranteed to be higher than what you would owe on a properly filed return.
Why the SFR Is Always Worse
The IRS builds the SFR using only what they know: your reported income. They don't know about your deductions, your business expenses, your itemized deductions, your qualifying dependents, or your credits. The SFR uses single filing status, takes only the standard deduction, claims no dependents, and allows no business expenses. If you're self-employed and had $100,000 in gross revenue but $70,000 in legitimate expenses, the SFR taxes you on the full $100,000.
I've seen SFR assessments that were three or four times higher than what the taxpayer actually owed. Some people who would have gotten refunds end up with five-figure balances because the SFR didn't account for withholding credits or refundable credits they were entitled to.
The 30-Day Response Window
The CP2566 gives you 30 days to either accept the proposed assessment or file your own return. Filing your own return is almost always the right move. Your return replaces the SFR and recalculates your actual tax liability with all your deductions, credits, and proper filing status.
If you don't respond within 30 days, the IRS assesses the tax from the SFR. Once assessed, you're in collection with an inflated balance. You can still file your original return after assessment, but the IRS takes longer to process it and you'll accrue penalties and interest on the inflated amount in the meantime.
How to Respond
File your actual tax return for the year in question. If you're missing records, reconstruct them using bank statements, your IRS Wage and Income Transcript (which shows all income reported to the IRS), and any receipts or records you can locate. A late return with estimated expenses is better than an SFR with no expenses at all.
Send your return to the address on the CP2566, not to the normal filing address. Include a copy of the CP2566 with your return so the IRS can match it to the SFR case.
If you've received a CP2566, call us at (813) 229-7100. We file SFR replacement returns regularly and can help you reconstruct records you're missing.