The CP2566R combines two problems: the IRS calculated your tax for a year you didn't file, and they're holding a refund from another year pending resolution. Your refund is being used as leverage to get you to file the delinquent return.
The Double Problem
First, the proposed tax. The IRS calculated your tax, penalty, and interest using wages and other income reported by employers, financial institutions, and others. It doesn't know about deductions or credits you may be eligible for, so the proposed amount is often higher than what you actually owe.
Second, the refund hold. A refund you're owed from a different tax year is frozen until you either file your own return for the SFR year or accept and pay the proposed amount due. If you don't respond, the IRS may apply all or part of the refund to the tax it calculated.
How to Fix Both Problems at Once
File your own return for the SFR year. Your return replaces the SFR and recalculates your actual liability with proper deductions, credits, and filing status. Once the IRS processes your return, the amount due is based on your actual tax. If the adjustment results in a lower balance (or no balance), any remaining refund from the other year is released.
If your own return for that year shows a refund, the IRS can generally pay it only if the return is filed within three years of its original due date. Waiting can cost you that money.
Don't Wait
Every day you wait, interest and penalties keep growing on any balance you actually owe. The sooner you file your actual return, the sooner the balance is corrected and your refund is released.
If you've received a CP2566R, call us at (813) 229-7100. We file SFR replacement returns regularly.