South Dakota Unfiled Return Demand Guide

When the Internal Revenue Service (IRS) sends a South Dakota Unfiled Return Demand, it indicates that no record exists showing a required tax return was filed for one or more years. While South Dakota residents do not pay state income tax, they are still required to comply with federal filing requirements. This notice serves as a formal reminder that the taxpayer must file, verify, or correct their federal return information to avoid further penalties or enforcement actions.

Receiving an unfiled return demand can be stressful, especially for those unfamiliar with tax procedures. The notice may result from filing errors, unprocessed returns, or missing income records reported by employers or financial institutions. Understanding why the IRS issued the notice helps taxpayers determine the following steps to take, such as filing overdue returns, verifying already submitted documents, or addressing potential data mismatches.

This guide explains how the unfiled return demand process works, what it means for South Dakota taxpayers, and how to respond promptly to protect financial standing. It outlines penalties for ignoring notices, details available payment plans and relief options, and provides step-by-step instructions to resolve the issue efficiently. With the right approach, taxpayers can avoid additional costs, restore compliance, and maintain peace of mind knowing their filing obligations are complete.

What Is an Unfiled Return Demand?

An Unfiled Return Demand is a formal notice issued by the Internal Revenue Service (IRS) when it has no record of a taxpayer’s required federal tax return for one or more years. This notice often comes in the form of a CP59 letter, which alerts taxpayers that the IRS believes a return is missing and requests immediate action. It marks the first stage in the IRS process for collecting unfiled returns and ensuring compliance with federal tax laws.

Understanding the CP59 Notice

The CP59 notice is the most common version of the unfiled return demand. It informs the taxpayer that the IRS did not receive their tax return and provides specific details about how to respond. The notice generally includes:

• Tax Year(s) in Question: The notice identifies the specific years for which the IRS has not received a return. This helps taxpayers confirm whether a filing was missed or delayed.
  
  
• Notice Date: The notice lists the date it was issued, which determines the timeframe for the taxpayer to respond. Quick action can prevent escalation.
  
  
• Required Action: The notice outlines the necessary steps for the taxpayer, such as filing the missing return or confirming that no filing is required.
  
  
• Contact Information: The notice provides the IRS mailing address, phone number, and online options for submitting questions or documents.
  
  
• Form 15103: The notice includes this form, which taxpayers must complete to indicate whether they filed, did not need to file, or will file immediately.

Purpose of the Notice

The primary purpose of an unfiled return demand is to encourage compliance by ensuring all taxpayers submit their required returns. The IRS uses this process to confirm income reporting, verify tax liabilities, and prevent potential revenue loss. Even if a taxpayer owes no tax, failing to respond can lead to future enforcement actions or substitute returns being filed by the IRS on the taxpayer’s behalf.

Common Characteristics of the Notice

Every unfiled return demand shares several consistent features that help taxpayers identify and address it promptly:

• The notice clearly states that the IRS has no record of a filed return for specific years.
  
  
• It instructs taxpayers to either file the missing return or explain why it was not required.
  
  
• It outlines the possible penalties and interest that could apply if the notice is ignored.
  
  
• It provides mailing instructions and resources for obtaining assistance from the IRS or the Taxpayer Advocate Service.

The Unfiled Return Demand is part of the IRS’s Simple Notice Initiative, which aims to make government communication more transparent and easier to understand.

Understanding this notice is crucial for resolving it quickly. By carefully reviewing the notice and taking the necessary steps, taxpayers can protect themselves from unnecessary penalties, avoid collection actions, and maintain compliance with federal tax requirements.

Why Did You Receive This Notice?

The IRS issues an Unfiled Return Demand when its records show that a taxpayer has not filed a required federal tax return for one or more years. This notice does not always indicate wrongdoing. It is often triggered by filing errors, unprocessed returns, or mismatched data received from employers, banks, or other organizations. Understanding the reason behind the notice helps taxpayers take corrective action before penalties or enforcement measures begin.

Common Reasons for Receiving the Notice

The IRS may send an Unfiled Return Demand for several reasons. These situations can happen even when a taxpayer believes everything was filed correctly.

• Processing Delays: During busy tax seasons, it can take weeks or months for paper returns to post in the IRS system. A return still being processed may appear as missing.
  
  
• Filing Errors: Mistakes such as using an incorrect Social Security Number, omitting a signature, or submitting incomplete forms can cause the IRS to reject a return.
  
  
• Mailing or E-Filing Issues: A paper return might have been lost in the mail or sent to the wrong address. Electronic submissions sometimes fail without the filer being aware of it.
  
  
• Identity Verification Problems: If the IRS cannot confirm the taxpayer’s identity, it may hold or reject the return until verification is completed.
  
  
• Actual Non-Filing: Some taxpayers simply forget to file or incorrectly assume they are not required to do so, primarily self-employed individuals and independent contractors.

Understanding which of these issues caused the notice helps taxpayers identify the necessary documents to gather and how to respond accurately to correct the record.

Data Matching Triggers

The IRS regularly compares third-party income data with taxpayer filings to identify potential non-filers. This process includes:

• Employer Reports: The IRS receives W-2 forms from employers, which show wages and withholding. If a matching return is not found, an alert is triggered.
  
  
• Financial Institution Reports: Banks and investment firms file Form 1099 for interest, dividends, and other types of income. Missing returns linked to these forms are flagged.
  
  
• Government and Benefit Payments: Information from Social Security, unemployment offices, and other government agencies is reviewed to verify taxpayer compliance.
  
  
• Historical Filing Patterns: Taxpayers who consistently filed in prior years but stop suddenly may be automatically flagged for non-filing review.

Recognizing which factor caused the notice helps taxpayers determine what records to collect and how to respond effectively. Prompt action prevents the situation from escalating into additional notices or penalty assessments.

What Happens If You Ignore the Notice?

Failing to respond to an Unfiled Return Demand allows the IRS to assume the taxpayer is continuing to neglect filing obligations. This can result in penalties, interest, substitute returns, and ultimately, collection actions. Each stage increases the amount owed and can make resolution more difficult.

Immediate Consequences

• Failure-to-File Penalty: The IRS typically charges 5 percent of the unpaid tax for each month the return is late, up to a maximum of 25 percent of the unpaid tax. This penalty begins the day after the filing deadline.
  
  
• Failure-to-Pay Penalty: If taxes are not paid by the due date, an additional 0.5 percent of the unpaid balance is charged monthly until the full amount is paid.
  
  
• Interest Charges: Interest accrues daily on both the unpaid tax and penalties, increasing the total balance owed.
  
  
• Minimum Penalty: If a return is more than 60 days late, the IRS may apply a minimum penalty of $510 or 100 percent of the unpaid tax, whichever is less.

Escalating Enforcement

• CP515 or CP516 Notices: These are follow-up reminders indicating that the IRS still has not received the return.
  
  
• CP518 Notice: This is the final reminder before the IRS begins more serious enforcement actions.
  
  
• CP3219N Notice of Deficiency: Also known as the 90-day letter, it provides taxpayers with one last opportunity to file before the IRS assesses the tax due and initiates collections.

Substitute Return Creation

When a taxpayer fails to file, the IRS may prepare a substitute return using only the income data reported by third parties. This return usually does not include deductions, credits, or exemptions. As a result, the tax bill is often higher than it would be if the taxpayer had filed voluntarily. Once the substitute return becomes final, the IRS can begin collection proceedings to recover the debt.

Collection Actions

If taxes remain unpaid after assessment, the IRS may use the following enforcement tools:

• Federal Tax Lien: A lien gives the government a legal claim to the taxpayer’s property, including real estate and future assets. It can damage credit and complicate property sales.
  
  
• Levy or Garnishment: The IRS may seize bank funds or garnish wages to satisfy the outstanding balance.
  
  
• Asset Seizure: In severe cases, vehicles, homes, or other valuable assets may be taken and sold to pay the debt.
  
  
• Passport Restrictions: Taxpayers with outstanding debts exceeding federal thresholds may face denial or revocation of their passports.

Legal Consequences

While rare, cases involving deliberate non-filing or fraud may result in criminal prosecution. Most taxpayers can avoid such outcomes by cooperating and filing promptly once notified.

Ignoring an IRS notice rarely makes the problem disappear. Taking action early helps avoid unnecessary penalties and keeps future tax compliance simple.

Step-by-Step: How to Respond to an Unfiled Return Demand

Responding correctly to an Unfiled Return Demand ensures that the IRS updates its records and stops any further enforcement activity. The process involves verifying the notice, reviewing personal records, gathering supporting documents, and communicating clearly with the IRS.

Step 1: Verify the Notice.

Taxpayers should first confirm that the notice is authentic. Genuine IRS notices are sent by mail and include the IRS logo, a notice number such as CP59, and contact details. Reviewing the tax years and identifying relevant information helps ensure that the notice is addressed to the correct person.

Step 2: Review Filing Records.

Before taking further action, taxpayers should check their past tax records. They should confirm whether they have already filed the return in question and whether the IRS has accepted it. Proof of e-filing, such as confirmation emails or transmission reports, and postal receipts for mailed returns, should be gathered for reference.

Step 3: Gather Supporting Documentation.

To correct or verify filings, taxpayers should collect all documents that confirm their income, tax payments, and prior correspondence with the IRS. Having complete and accurate records helps ensure that the IRS receives the correct information and that the taxpayer can substantiate their filing history if questioned later.

• Previously Filed Tax Returns: Taxpayers should obtain copies of any prior returns for the years in question. These serve as proof that a return was filed and can help identify missing or incorrect data.
  
  
• W-2 and 1099 Forms: Income records from employers, clients, or financial institutions are essential for verifying total income. These forms confirm wages, contract earnings, interest, or dividends that were reported to the IRS.
  
  
• Records of Estimated Tax Payments and Credits: Taxpayers should include documentation of any quarterly estimated payments or credits, such as child tax credits or education credits, to ensure these amounts are applied correctly.
  
  
• IRS Correspondence: Any letters or notices received for the same period, including acknowledgment letters, balance updates, or identity verification requests, should be reviewed and kept with other records.

Gathering this documentation ensures the return or response is accurate and complete. It also demonstrates good faith compliance, which can help avoid additional penalties or processing delays.

Step 4: Order IRS Transcripts.

Transcripts show what information the IRS already has on file. Taxpayers can request transcripts online through the “Get Transcript” tool, by calling 800-908-9946, or by submitting Form 4506-T by mail. Reviewing transcripts helps confirm whether income data matches reported information and assists in preparing an accurate return.

Step 5: Determine the Correct Response.

Depending on the situation, taxpayers should take one of the following actions:

• If the return was already filed, complete Form 15103, check the box indicating the return has been filed, and include proof of filing, such as a copy of the return and confirmation of acceptance.
  
  
• If the return was not filed, prepare and file the missing return as soon as possible. Include Form 15103 explaining the reason for late filing and any payment due.
  
  
• If filing was not required, complete Form 15103 and explain with supporting evidence, such as income records below the filing threshold.

Step 6: Submit the Response.

Taxpayers should mail all required forms, returns, and documents to the address provided in the notice. It is best to send responses using certified mail with a return receipt requested to confirm delivery. Payments may be enclosed by check or arranged online through an installment payment plan if the taxpayer cannot pay the total amount at once.

Step 7: Keep Detailed Records.

Copies of documents, notices, and receipts should be secured for complete documentation. These documents can help answer any follow-up queries and provide evidence of compliance if the IRS requests additional documentation.

Responding quickly and in an organized manner helps to solve the problem efficiently. It also prevents penalties and interest from accumulating, which protects the taxpayer's financial record.

IRS Resolution Options After You File

When the IRS receives a response to a demand for an unfiled return, it reviews the return that was submitted, verifies the income information, and determines the amount still owed. If taxes are due, taxpayers can manage or lower their obligations with a variety of payment and relief options. Taxpayers can make informed choices for their financial situation and stay in compliance in the future if they understand these programs.

Payment Plans and Installment Agreements

When immediate full payment is not possible, the IRS offers flexible options that allow taxpayers to pay their balance over time.

• Short-Term Payment Plan: This is available for those who can pay the total balance within 180 days. No setup fee is required; however, interest and penalties will continue until the balance is fully paid.
  
  
• Long-Term Installment Agreement: This type of installment plan is designed for taxpayers who require additional time. It allows monthly payments for balances up to $50,000 for individuals and $25,000 for businesses. Setup fees vary depending on whether payments are made online or through direct debit.
  
  
• Direct Debit Installment Agreement: Taxpayers can authorize automatic monthly payments to be made from their bank account. This option reduces the failure-to-pay penalty from 0.5 percent to 0.25 percent each month.

These payment plans allow individuals to avoid aggressive collection actions while steadily reducing their debt.

Penalty Relief and Abatement

The IRS may remove or reduce penalties for taxpayers who meet specific qualifications.

• First-Time Penalty Abatement: This relief is available for taxpayers with a clean filing and payment history over the prior three years. It can remove penalties for failing to file or pay on time.
  
  
• Reasonable Cause Relief: This relief is granted when circumstances beyond the taxpayer’s control prevented timely filing or payment. Examples include serious illness, natural disasters, or loss of essential records.
  
  
• Administrative Relief: This relief is offered in cases where the IRS has made errors that contributed to delays or confusion.

Penalty relief can save taxpayers substantial money, but documentation and a clear explanation are required for approval.

Offer in Compromise (OIC)

An Offer in Compromise allows a taxpayer to settle tax debt for less than the full amount owed. The IRS considers this option when it believes the full debt cannot be collected.

• Eligibility Requirements: The taxpayer must have filed all required returns, made necessary estimated payments, and not be in bankruptcy.
  
  
• Types of Offers: The IRS evaluates offers based on doubt as to collectibility, doubt as to liability, or effective tax administration for financial hardship.
  
  
• Application Process: Applicants must submit Form 656, along with a $205 application fee and supporting financial statements. Low-income taxpayers may qualify for a fee waiver.

This program can help individuals facing serious financial challenges settle their tax debt permanently, provided they meet the eligibility criteria.

Hardship and Relief Programs

For taxpayers unable to pay due to financial hardship, the IRS provides temporary and long-term relief options.

• Currently Not Collectible (CNC) Status: The IRS suspends collection actions for those who cannot pay basic living expenses. The taxpayer’s financial situation is reviewed periodically to determine if payments can resume later.
  
  
• Innocent Spouse Relief: This type of relief applies to individuals who filed a joint return but were unaware that their spouse underreported income or claimed false deductions. This program can remove tax liability, penalties, and interest attributable to the other spouse.

Professional Representation

Some cases require assistance from qualified professionals who can communicate directly with the IRS.

• Form 2848 (Power of Attorney): This document authorizes a Certified Public Accountant (CPA), Enrolled Agent (EA), or tax attorney to represent the taxpayer.
  
  
• Representation Benefits: A representative can negotiate payment terms, file appeals, or request penalty relief on behalf of the taxpayer.

Taxpayers often find that hiring a professional to assist them with complex tax procedures helps them complete the task quickly and without incurring expensive mistakes.

Taxpayers can take control of their finances by being aware of these resolution options. Choosing the right plan or relief program can help you relax, avoid trouble, and make it easier to follow the rules.

Preventing Future Unfiled Return Notices

Taxpayers can avoid getting another demand for an unfiled return in the future by taking proactive steps. The goal is to ensure that every filing is confirmed and recorded accurately, and that compliance remains consistent.

Best Practices for Compliance

• Verify Filing Confirmation: Always confirm that the IRS accepts electronic filings. For paper returns, use certified mail and keep postal receipts.
  
  
• Set Filing Reminders: Mark tax deadlines on a personal calendar or use IRS alerts to ensure timely submission each year.
  
  
• Maintain Organized Records: Keep copies of all tax returns, W-2s, 1099s, and payment receipts in a secure location for a minimum of three years.
  
  
• Review IRS Transcripts Annually: An annual review of IRS transcripts helps verify that all returns are correctly processed and that no errors exist in reported income.
  
  
• Make Estimated Tax Payments: Self-employed individuals and independent contractors should make quarterly payments to avoid underpayment penalties.
  
  
• Seek Professional Help When Needed: Tax professionals can assist with complex filings, payment plans, and requests for penalty relief.

Staying proactive about filing and recordkeeping ensures taxpayers avoid unnecessary notices and penalties. Consistent compliance not only saves money but also maintains peace of mind by keeping IRS accounts in good standing.

Frequently Asked Questions

What should a taxpayer do after receiving a South Dakota Unfiled Return Demand?

A taxpayer should first read the notice carefully and confirm whether the missing tax return was filed. If not, the return should be completed and submitted immediately, along with all supporting documents. Those who owe a balance may include payment or apply for a payment plan. Responding promptly helps avoid additional penalties, interest, or IRS collection actions.

Can a taxpayer request a payment plan if they are unable to pay the full balance?

Yes. The IRS offers several payment plans and installment agreements that enable taxpayers to pay their taxes in monthly installments rather than all at once. Options include short-term extensions and long-term installment payment plans. Setting up a plan online or by mail helps prevent enforcement actions. Taxpayers who qualify may also be eligible for lower setup fees or interest, depending on their financial situation.

How can self-employed or independent contractors handle unfiled tax returns?

Self-employed individuals and independent contractors must report all income, even if no tax was withheld. If they have unfiled returns, they should gather income records, submit all past-due returns, and make estimated tax payments for the current year. Establishing an installment agreement may help them settle tax debt gradually. Proper filing protects their credit and prevents penalties or business collection actions.

What happens if a taxpayer cannot pay their tax bill in full?

If a taxpayer cannot make a full payment, the IRS provides flexible payment options. They may qualify for an installment agreement that allows monthly payments until the total balance is paid. In severe hardship cases, the IRS may temporarily delay collections or accept an Offer in Compromise to settle tax debt for less than the full amount owed.

When should taxpayers contact the Taxpayer Advocate Service?

Taxpayers should contact the Taxpayer Advocate Service when they have tried to resolve a tax issue through normal IRS channels without success. This independent organization assists individuals facing economic hardship, excessive delays, or communication problems. Taxpayers can contact the service by phone, mail, or online to request assistance with completing their filing or payment process.

Can penalties and interest be reduced or removed?

In some cases, yes. Taxpayers may qualify for penalty abatement if they have a clean filing history or can show reasonable cause, such as illness or natural disaster. Interest continues until the balance is paid, but reducing penalties can lower the total cost. Requests for penalty relief should be submitted using the proper IRS forms or with assistance from a tax attorney or representative.