Introduction: What an IRS CP63 Notice Means for an American in Britain
An IRS CP63 notice means the IRS has frozen a refund you claimed because its records show at least one earlier year with no return from you. The letter is headed "We have held your tax refund – act now", and it means exactly that. Until the missing year is dealt with, the money stays with the IRS.
For an American living in London, the refund at stake is rarely small. Overpaid estimated tax after a large US share sale, withholding on a final US payroll, or a credit rolled forward from a previous return can easily reach five or six figures. Meanwhile, the missing year is often one the client assumed did not matter, because UK tax covered the US bill and nothing seemed to be owed.
This guide explains why the IRS sends an IRS CP63 notice, which data triggers it, how long the hold lasts and what happens if you let the reply date pass. In addition, it covers the points that the general guides leave out: the very short reply window, the US-source third-party data that drives the hold, and the reasons a substitute return prepared by the IRS will ignore the UK tax you paid. Above all, it shows how to release the refund without creating new problems on the missed years.
Why an IRS CP63 Notice Is Not a Bill
An IRS CP63 notice does not assess any tax. Instead, it tells you that the IRS will not pay out the refund until it can decide whether you owe tax for another year. The IRS's own CP63 explanation page says the agency believes you will owe additional tax on the unfiled year, which is why it keeps the refund as security.
That distinction matters. Because nothing has been assessed yet, you still control the outcome. You can file the missing return, explain that you had no filing requirement, or show that you already filed. Consequently, the next few weeks decide whether the refund comes back to you or disappears into a liability the IRS calculates on your behalf.
Who Usually Receives One in Britain
In our experience, the typical recipient is a US citizen or green card holder who moved to the UK, kept a US brokerage or bank account, and filed some years but not others. Frequently, the client filed the most recent year to recover a refund, and that filing is what triggered the hold. Accidental Americans who file for the first time to claim a refund can trigger the same mechanism if US institutions have been reporting income under their Social Security number for earlier years.
How the Delinquent Return Refund Hold Works
The IRS CP63 notice is the public face of the IRS Delinquent Return Refund Hold programme. Its rules sit in IRM 25.12.1, Processing Refund Hold Program Inventory, and they are more mechanical than most taxpayers realise. Understanding them tells you how much time you have and what will release the money.
The Five-Year Look-Back and the Liability Flag
According to the manual, the IRS holds individual refunds and credit elections when the account has at least one unfiled year within the five years before the current tax year. However, a missing year alone is not enough. The unfiled year must also carry an internal liability indicator, which the system sets when third-party information returns suggest tax is likely to be due.
For Americans in Britain, that third-party data is almost always US-source. Forms 1099-B from a US broker, 1099-DIV and 1099-INT from US accounts, a W-2 from a former US employer and Form 1099-R from a US pension feed the calculation. By contrast, your UK salary, UK dividends and UK capital gains usually do not appear in the IRS information return system at all. Therefore, the IRS sees the US income, sees no return and assumes no foreign tax credit, which is why the projected liability looks far larger than reality.
Which Refunds the IRS Can Hold
The hold applies to the refund year shown on your IRS CP63 notice, and it also catches a "credit elect", meaning an overpayment you asked the IRS to roll into next year's estimated tax. Since October 2008, the programme has held refunds on late prior-year returns as well as current-year ones. As a result, a catch-up filer who sends the refund years first and the balance-due years later can trigger an IRS CP63 notice against their own catch-up.
There is one limit worth knowing. The manual states that the programme does not hold refunds that are already barred by the refund statute. If a year is past its section 6511 refund window, the money is lost for a different reason, and the hold is irrelevant.
The Legal Authority Behind the Hold
The IRS relies on IRC section 6402, which lets it credit an overpayment against any liability you owe. Strictly, a liability on an unfiled year does not exist until it is assessed, so the hold is a pause while the IRS establishes one. Accordingly, the programme is built around a fixed period rather than an open-ended freeze.
How Long the IRS Holds Your Refund
Most general guides say the IRS keeps the money "until you file". That is true in practice, but the manual sets a firmer structure, and the dates matter when you are dealing with overseas post.
The Six-Month Designated Hold Period
The IRM sets the hold at six months. Specifically, it explains that under IRC section 6532(a)(1) a taxpayer may sue for a refund six months after filing a claim, so the IRS aims to resolve the case within that time. The six months begin on 15 April of the current year or on the date you filed, whichever is later.
If nothing happens within that period, the system is designed to release the refund automatically. However, do not treat that as a strategy. Before the period ends, the IRS can refer the unfiled year to its Automated Substitute for Return unit, issue a statutory notice of deficiency, and move the held refund across to the delinquent year. Once the money moves, the manual says it stays there as a payment on that year.
The Reply Date on Your Letter
Many competitor pages state that you have 30 days to respond. The IRS's own sample CP63 letter tells a different story. In that sample, the notice is dated 28 January and asks for the missing return by 7 February, which is only ten days later.
For someone in London, ten days barely covers international post. Consequently, the date printed on your IRS CP63 notice may already have passed by the time you open it. Missing the date does not end your options, but it does mean the IRS may start calculating your tax without you. Therefore, act on the day the IRS CP63 notice arrives and keep the envelope, because the postmark helps if you later need to show the notice reached you late.
Interest on the Held Money
A refund the IRS holds is not entirely dead money. Under IRC section 6611, the IRS must pay interest if it does not issue an overpayment within 45 days of the later of the due date or the filing date. The manual notes this cost as one reason the programme must move quickly. Nevertheless, interest is small consolation if the refund ends up applied to a liability you did not owe.
What Happens If You Ignore an IRS CP63 Notice
Ignoring an IRS CP63 notice hands the calculation to the IRS. Furthermore, the IRS calculation will almost certainly be worse than yours, because it is built from incomplete US data and ignores the elections that protect Americans abroad.
The Substitute for Return Built on US Data Only
Once an IRS CP63 notice goes unanswered, IRC section 6020(b) lets the IRS prepare a return for you. The manual's warning letter text is blunt: a substitute return uses single or married-filing-separately status, one exemption and no itemised deductions, which can produce a larger balance than your own return. Our guide to the substitute for return process explains the stages in detail.
For an American in Britain, the gap is bigger still. A broker's Form 1099-B for shares bought before cost-basis reporting began often shows proceeds without a basis. Similarly, the IRS has no record of the UK capital gains tax, income tax or dividend tax you paid. As a result, the substitute return can tax gross sale proceeds as if they were pure profit and give no foreign tax credit at all.
The Lost Foreign Earned Income Exclusion
There is a subtler risk that no competitor page mentions. The foreign earned income exclusion is an election, and under Treasury Regulation 1.911-7 a late return can still claim it in two situations. If you owe no federal tax after the exclusion, you can elect it whenever you file. However, if you still owe tax after the exclusion, you must file before the IRS discovers that you failed to elect it.
An IRS CP63 notice shows the IRS has already identified the missing year. Arguably, that puts the "before discovery" condition at risk for any year where the exclusion alone would not eliminate the tax. Our guide to the late FEIE election covers the regulation more fully. For high earners, the safer route is usually the foreign tax credit on Form 1116, which has no discovery condition, and which most London salaries need anyway because they exceed the exclusion limit.
Penalties That Grow While You Wait
Every month without a return adds to the failure-to-file penalty, which runs at 5% of the unpaid tax per month up to 25%. In addition, interest runs from the original due date. If UK credits reduce the true US tax to a small figure, these charges stay small. On a substitute return with no credits, however, the same percentages apply to a figure many times larger.
How to Respond to an IRS CP63 Notice From the UK
The right response depends on which of three positions you are in. Either you had no filing requirement for the missing year, or you already filed, or you need to file now. Below, we walk through each in the order we use with clients.
First, Confirm What the IRS Actually Holds
Start by reading the IRS CP63 notice for two years: the year of the held refund and the year the IRS says is missing. Then download your account and wage-and-income transcripts through the IRS Get Transcript service. The wage-and-income transcript shows the third-party data that set the liability flag, which tells you what the IRS thinks you earned. Our guide to IRS wage transcripts explains how to read them when most of your income is British.
Next, check whether the missing year falls inside your refund window and whether other years are also unfiled. Your IRS CP63 notice names one year, but the five-year look-back means another unfiled year can keep the hold in place after you deal with the first. Therefore, plan the whole catch-up before you send anything.
If You Had No Filing Requirement
Some recipients genuinely had no obligation to file. For instance, a dual national US UK citizen with low income in a gap year may have been under the threshold. Remember, though, that the filing test counts worldwide gross income, including salary you would later exclude. The IRS guidance for citizens abroad states this plainly, and married people filing separately have a filing threshold of just $5.
If you were truly below the threshold, write to the address on the IRS CP63 notice with a short explanation and supporting figures. The manual lists "no filing requirement for the delinquent year" as one of the grounds for releasing the refund. However, a London salary of any size almost always creates a requirement, so this route is rare for our clients.
If You Already Filed
Occasionally the IRS simply has not processed a return you sent, or filed it under a different name or number. In that case, send a copy of the return, signed again, with proof of the original posting date. The manual tells staff to verify the earlier filing, close the delinquency and release the hold. Similarly, if you filed jointly with a spouse for that year, say so, because the IRS will check both accounts.
If You Need to File the Missing Return
This is the usual position. Prepare the missing return in full, including Form 1116 or Form 2555, Form 8938 where your assets exceed the thresholds, and every information form that year required. If the year also lacks an FBAR, file it through the FinCEN BSA E-Filing system at the same time; our FBAR and FATCA team handles that alongside the return.
The sample notice suggests e-filing where the return is within two years of its original due date. Older years must go on paper to the address on the IRS CP63 notice, which the IRM gives as Stop 5501, P.O. Box 149338, Austin, Texas 78714-9338. Couriers such as DHL cannot deliver to a P.O. box, so for a private delivery service the manual gives Internal Revenue Service, 3651 South I-H 35, Stop 5501, Austin, Texas 78741.
What Releases the Refund and How Fast
Once the IRS receives your response, the manual sets out exactly what releases the refund. Knowing these rules lets you predict the timing instead of waiting blindly.
Refund, Even Balance or Balance Due
If your missing return shows a refund or an even balance, and it resolves every delinquency, staff can release the freeze manually. If your return shows tax due, the manual tells staff not to release the freeze by hand. Instead, the return goes to processing, and once it posts, the system releases the hold automatically after offsetting the amount you owe.
In other words, the IRS will pay you the held refund minus the tax, penalties and interest on the missing year. The sample CP63 warns that processing can take up to 12 weeks. For a balance-due return, you can pay the shortfall separately or let the offset handle it; the IRS payment plan options cover any remainder the refund does not absorb.
Hardship and Disaster Release
The manual allows a manual refund before the delinquency is resolved only in narrow cases, such as documented economic hardship or a declared disaster. Even then, the Taxpayer Advocate Service cannot release the hold itself; it must ask the IRS operation to do so, and the manual limits any hardship refund to the amount proven. For a high-net-worth household, hardship is rarely available. Our guide to the Taxpayer Advocate Service from Britain explains when escalation does help.
CP63 Versus CP88 and CP59
You may also see related letters. The CP88 is the Examination version of the same hold, sent when the delinquent year is already open with an examiner. By contrast, a CP59 asks for a missing return without any refund being held, and our guide to the IRS CP59 notice covers that letter. If the IRS holds payments for a year with no return, you will receive a CP80 instead, explained in our IRS CP80 notice guide.
Practical Problems for Americans Living in Britain
The general guides assume a US address, a US phone and a US bank account. An IRS CP63 notice received in London raises practical issues that those guides never address.
Calling the Refund Hold Line From the UK
Your IRS CP63 notice gives the refund hold line, 1-866-897-3315, open 7am to 7pm Central Time. However, US toll-free numbers often fail from UK mobiles and landlines. The IRS lists international contact options, including 267-941-1000, which is not toll-free. In practice, a US-licensed representative holding a signed Form 2848 power of attorney can call during US hours and fax the return where the IRS agrees, which saves days of international post.
Address Problems and Undelivered Notices
If an IRS CP63 notice is returned as undeliverable, the manual says the IRS will search for a new address and reissue the IRS CP63 notice as Letter 2825C, but it will not release the hold. Thus a stale US address can leave a refund frozen for months without you knowing. Keeping your address current, as our guide to Form 8822 explains, is the cheapest protection available.
Getting the Released Refund to Britain
Once the hold lifts, the refund still has to reach you. The US Treasury is moving away from paper checks, and many UK banks will not accept a US direct deposit. Our guide to receiving an IRS refund abroad sets out the options, including applying the overpayment to next year's estimated tax.
The UK Side of a US Refund
If you claimed UK foreign tax credit relief for the US tax in the refund year, a later US refund can make that relief excessive. Section 80 of the Taxation (International and Other Provisions) Act 2010 requires you to tell HMRC within one year of the adjustment. GOV.UK's guidance on being taxed twice explains the relief in general terms. Consequently, review the UK return for that year before you spend the money.
Case Study: A $31,600 Refund Held Over a Forgotten 2022 Return
The following illustration uses invented figures, but it reflects a pattern we see regularly. Daniel is a US citizen and a managing director at a London investment bank. He moved from New York in 2021, filed his 2021 and 2023 US returns, but never filed for 2022, believing UK tax covered everything.
The Facts and the Notice
In 2025, Daniel sold US shares and paid $40,000 of estimated tax to be safe. His 2025 return, filed on 10 April 2026, showed that UK capital gains tax credits cut his true US liability, leaving a refund of $31,600. Instead of a payment, he received an IRS CP63 notice dated 14 September 2026, asking for his 2022 return within ten days. It reached his London flat on 22 September.
For 2022, the IRS held a Form 1099-B showing $612,000 of proceeds from older shares, with no cost basis reported, plus $18,500 of dividends and $4,200 of interest from his US brokerage. It had no record of his £390,000 UK salary or the UK tax on it. Moreover, the six-month hold period, running from 15 April 2026, was due to end on 15 October 2026, so the IRS had every reason to move quickly towards a substitute return.
Two Possible Outcomes
Had Daniel done nothing, a substitute return could have taxed the whole $612,000 as long-term gain, alongside the dividends, at 20% plus the 3.8% net investment income tax. That produces a federal bill of roughly $150,000 before penalties, with no foreign tax credit. The IRS would then have moved the $31,600 refund across to 2022 and pursued the remaining balance, plus a 25% failure-to-file penalty, interest and failure-to-pay charges.
Instead, we rebuilt 2022 from his broker statements and UK records. His true basis was $497,000, so the gain was $115,000, and he had paid UK capital gains tax of about $22,000 on it. Because the gain bore UK tax, it was foreign-source for a US citizen with a UK tax home, so Form 1116 credits covered the regular US tax on the gain, the dividends, the interest and his salary. What remained was mainly the net investment income tax, which the IRS does not allow foreign tax credits to reduce, at about $5,200.
The Result
With the failure-to-file penalty and interest, the 2022 balance came to roughly $7,900. We sent the complete 2022 return by courier to the Austin address, with his late FBAR filed electronically the same week, and our US representative confirmed receipt by phone. The return posted, the hold released automatically, and the IRS paid Daniel about $23,700, meaning his refund minus the 2022 balance, plus interest on the held amount. Without a response, the same IRS CP63 notice would have left him owing well over $150,000.
A Decision Process for Any IRS CP63 Notice
When a client brings us an IRS CP63 notice, we work through the same sequence every time. It is written here as a process you can follow, step by step, before you speak to anyone.
Step One: Fix the Dates
Write down the date of the IRS CP63 notice, the reply date, the date it arrived and the six-month end date, which is six months after 15 April or your filing date, whichever is later. Then compare those dates with the refund window on every unfiled year. If the hold period has only weeks left, assume the IRS is preparing a substitute return, and move straight to filing.
Step Two: Map Every Missing Year
Next, list every year in the five-year look-back with no return, not just the year on the IRS CP63 notice. Pull the wage-and-income transcript for each one. Where several years are missing, consider whether a wider compliance route suits you better; the IRS Streamlined Filing Compliance Procedures and our catch-up filing service explain the conditions, which depend on non-wilful conduct.
Step Three: Choose Credits Over Exclusions Where Tax Remains
For each missing year, test whether the foreign earned income exclusion alone would eliminate the tax. If it would not, rely on the foreign tax credit, because the late-election rule makes the exclusion uncertain once the IRS has identified the year. In addition, check whether the US-UK treaty re-sourcing rules increase the credit available; our tax treaty optimisation work covers that analysis.
Step Four: File, Confirm and Track
Finally, send the return by a tracked method, confirm receipt through a representative where possible, and check the account transcript every few weeks. A posted return should release the hold once the delinquency closes. If another unfiled year keeps the refund frozen, the transcript will show the hold remaining, and you will know which year still needs attention.
How TaxYork Can Help
TaxYork provides comprehensive US and UK tax preparation and compliance for American executives, investors and company owners in Britain. When a client brings us an IRS CP63 notice, we date the hold, pull the transcripts, rebuild the missing year from UK and US records, and prepare the full return with Form 1116, Form 8938 and any late FBAR.
Furthermore, our US-licensed team can contact the IRS on your behalf under a power of attorney, which removes the problem of calling US toll-free lines from London. We also review the UK side, so that a released US refund does not create a fresh HMRC problem a year later.
Conclusion
An IRS CP63 notice is a warning with money attached. The IRS has your refund, it believes you owe tax on a missing year, and it has given you a short window to prove otherwise. For Americans in Britain, the IRS's view of that missing year is built almost entirely on US-source data, so its estimate of what you owe is usually far too high.
The fix is straightforward but time-sensitive: confirm the dates, map every missing year, prepare complete returns that claim the foreign tax credit, and get them to Austin before the hold period ends. Handled promptly, most holds end with the refund paid, less a modest balance on the missed year. Ignored, the same IRS CP63 notice can turn a refund into a six-figure demand.
Contact Us
If you have received an IRS CP63 notice or a CP88, contact us the day it arrives so we can check the hold dates before the IRS acts. You can reach TaxYork at hello@taxyork.com or on 020 3488 8606, or book a consultation online.
Disclaimer
This article is general information for US and UK taxpayers and does not constitute tax or legal guidance for your specific circumstances. The case study is an illustration with invented figures. Tax law, IRS procedures and the Internal Revenue Manual change, so confirm the rules that apply to you with a qualified professional before you act. TaxYork accepts no liability for action taken in reliance on this article without an engagement.