CP72 Notice
The CP72 is an IRS notice informing you that the IRS believes your tax return contains a frivolous position — a tax argument that has no legal basis under U.S. tax law. The IRS may impose a $5,000 civil penalty if you do not correct or explain your position.
Why Did You Receive This Notice?
You received a CP72 because the IRS reviewed your return and identified a position, deduction, or argument that it considers frivolous. Common frivolous positions include claims that wages are not taxable income, that filing a return is voluntary, that the IRS lacks jurisdiction over you, or other arguments that courts have repeatedly rejected. The IRS takes these positions seriously and may impose a $5,000 penalty even if no additional tax is ultimately owed.
What Does this Mean for You?
The CP72 means the IRS is on notice that you filed a return with a potentially invalid tax position and is warning you of the consequences. If you believe your position is legally valid, you must respond with a clear legal argument and documentation. If you filed a frivolous return by mistake or as a result of bad advice, correcting it quickly is important to avoid the penalty.
What Happens If You Ignore It?
Your Options
- Respond with a legal argument: If you genuinely believe your tax position is legally valid, respond in writing with a clear legal basis, citing relevant tax law or court decisions.
- Amend your return: If you realize the position was incorrect — especially if you received bad advice — file an amended return (Form 1040-X) correcting the position before the penalty is assessed.
- Contact a tax professional: Given the stakes, consulting a tax attorney or enrolled agent before responding to the IRS is strongly recommended.
Step-By-Step: What To Do Next
Step 1: Read the CP72 carefully and identify exactly which position or entry the IRS is questioning.
Step 2: Research whether that position has been accepted or rejected by the courts and the IRS.
Step 3: If the position is valid, prepare a written response citing specific legal authority.
Step 4: If the position is invalid, file an amended return (Form 1040-X) correcting it as soon as possible.
Step 5: Respond to the IRS by the deadline on the notice.
Step 6: If you received advice from a tax preparer that led to this notice, consider consulting an independent tax professional.
Can You Handle this Yourself?
A CP72 is not a notice most taxpayers should try to resolve entirely on their own. If you have solid legal authority for your position, you may be able to draft a response yourself. But given the potential for a $5,000 penalty and further escalation, getting a professional review before responding is wise — especially if you're not certain whether your position is defensible.
Expert Insight From Rockwater Tax
At Rockwater Tax, we take CP72 notices very seriously. In many cases, clients received advice from unscrupulous tax preparers promoting schemes the IRS has explicitly flagged as frivolous. If that happened to you, the first step is amending the return, and the second step may be reporting the preparer. Cooperating with the IRS quickly typically prevents the full $5,000 penalty from being assessed.
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FAQ
Q: What qualifies as a frivolous tax position?
A: The IRS publishes a list of positions it considers frivolous, including arguments that wages are not income, that taxes are voluntary, or that the 16th Amendment is invalid. These have all been rejected by courts.
Q: Can I avoid the $5,000 penalty?
A: Yes, if you amend your return or respond with a valid legal argument before the penalty is assessed. Speed matters.
Q: What if a tax preparer told me to take this position?
A: You are still responsible for what you sign on a tax return. However, you may have a claim against the preparer. A tax professional can help you assess your options.
