Letter 2566 is the Automated Substitute for Return (ASFR) 30-day letter. The IRS has information showing you were required to file a return for a tax year but did not. Rather than wait indefinitely, the IRS prepares a Substitute for Return based on the income reported to it by third parties (W-2s, 1099s) and sends Letter 2566 proposing to assess tax on that basis.
Why the SFR Overstates Your Liability
The SFR includes all income reported to the IRS but allows no deductions, no credits, no exemptions, and assumes the least favorable filing status (typically single or married filing separately). The proposed tax is almost always higher than the tax a correctly-filed return would show. For taxpayers with business income reported on 1099s, the proposed tax does not account for business expenses, which can make the overstatement dramatic.
The 30-Day Window
Letter 2566 gives you 30 days to file an actual return for the year in question. A filed return supersedes the SFR. If you do nothing, the IRS proceeds to a statutory notice of deficiency (Letter 3219 or CP3219A), which starts a 90-day Tax Court clock. If you do nothing after that, the SFR tax is assessed and collection begins.
The 30-day letter window is the easiest point to resolve an SFR. Filing a return now, before assessment, avoids the formal deficiency procedure and the collection cycle that follows.
After Assessment
If the SFR has already been assessed and the balance is in collection, you can still file an original return. The IRS will process it as a late original return and generally adjust the account to reflect the actual tax. This is called audit reconsideration and it is available even after collection has started. The sooner it is filed, the simpler the account cleanup.
If you received Letter 2566, call us at (813) 229-7100. Filing the correct return before the 30-day deadline is almost always the right move, and the arithmetic is usually much more favorable than the proposed SFR.