IRS Notice CP 278
What IRS Notice CP 278 means
IRS Notice CP 278 is a notice tied to the account issue described in CP 278. That sounds dry, but the practical point is simple: the IRS has a question, a proposed change, a balance, a refund issue, or a missing piece in its file. The notice number matters because the IRS uses that number to describe the type of problem it believes exists.
A taxpayer should not treat IRS Notice CP 278 like generic junk mail. The IRS says most notices deal with a specific issue and usually explain what action, if any, the taxpayer should take. The problem is that IRS letters are written for the IRS first and the reader second. They can be technically correct and still hard to follow. One paragraph might refer to a tax year. Another might mention a refund, balance, credit, penalty, or deadline. The job is to slow down and read the notice like evidence, not like a threat.
Most account notices are not dramatic, but they still need attention. IRS Notice CP 278 is tied to a tax year, a return, a payment, a penalty, a credit, or another account entry. The notice is the IRS version of a paper trail. Read it against the return and the transcript before deciding what it means.
Why you received IRS Notice CP 278
You received IRS Notice CP 278 because the IRS believes something connected to the account issue described in CP 278 needs attention. The trigger could be a tax return entry, a payment posting, a missing form, a third-party income document, a refund adjustment, a credit review, a penalty, or an account mismatch. Sometimes the IRS changed the return during processing. Sometimes it compared the return to W-2s, 1099s, K-1s, brokerage records, payroll filings, or other data sent by someone else.
Do not assume the IRS is right. Do not assume it is wrong either. That is the boring answer, but it is the answer that saves people money. The notice has to be checked against the filed return, the taxpayer’s records, and the IRS transcript for the year involved.
A common example: a taxpayer moved, changed banks, made an estimated payment under the wrong Social Security number, or received a late Form 1099 after the return was filed. The IRS computer sees a mismatch and sends a notice. Another common version is even more ordinary. The taxpayer entered a number on the wrong line, forgot a schedule, or claimed a credit without attaching the support the IRS wanted to see.
Why IRS Notice CP 278 matters
IRS Notice CP 278 matters because the notice can affect money and future IRS contact. A small refund adjustment can turn into a bigger problem if the taxpayer ignores the explanation. A balance notice can pick up penalties and interest. A proposed adjustment can become harder to dispute if the taxpayer misses the response date. A collection notice can move the account closer to levy activity.
The most dangerous IRS notice is not always the one with the biggest number. It is the one the taxpayer misunderstands. Someone might pay a balance that should have been disputed. Someone else might ignore a correct notice because the IRS wording annoyed them. Neither approach is smart. The better move is to identify what the IRS changed, what records support or contradict the change, and what response path the notice allows.
For IRS Notice CP 278, the taxpayer should look for the notice date, response deadline, tax year, form number, amount due or refund change, and contact instructions. If the notice includes a payment voucher, that does not automatically mean payment is the only option. If the notice says no response is needed, the taxpayer should still keep it with the return records. IRS notices have a way of becoming relevant months later.
Start with the account record
For IRS Notice CP 278, the account transcript is often the best place to start because it shows what the IRS has actually posted. The notice gives the IRS explanation. The transcript shows the account activity. The return shows what the taxpayer reported. Those three records should tell one story. When they don’t, that gap is where the work begins.
How some people handle IRS Notice CP 278
Some people handle IRS Notice CP 278 by creating a simple file before they do anything else. They keep the full notice, the envelope if timing matters, the filed return, wage and income forms, proof of payments, refund records, and any prior IRS letters for that tax year. Then they mark the deadline on a calendar. Not exciting. Very useful.
After that, they compare the IRS version of the facts to their own records. If the notice involves income, they check each W-2, 1099, brokerage statement, K-1, retirement form, and business income record. If it involves a payment, they look for bank withdrawals, Direct Pay confirmations, EFTPS receipts, canceled checks, payroll tax deposits, or estimated tax vouchers. If it involves a credit or dependent, they gather the records that prove eligibility rather than sending a vague explanation.
Some taxpayers agree with IRS Notice CP 278 after doing that review. Some partly agree and partly dispute it. Others respond because the IRS used incomplete information or posted something incorrectly. The right response depends on the notice language, the account transcript, the tax year, and the proof available. A short, clear response with the right documents is usually better than a long letter that explains everything except the actual issue.
Original documents should usually stay with the taxpayer unless the IRS specifically asks for them. Copies, labeled pages, and a mailing record are safer. If the notice allows faxing or online upload, the taxpayer should still save proof of what was sent and when.
How The Reed Corporation can help
The Reed Corporation can review IRS Notice CP 278 and translate it into plain English: what the IRS says, what year is involved, what deadline matters, and what records should be checked before anyone responds. A lot of notice work starts with that step. The letter feels less scary once the issue is named.
We can compare the notice to the filed return, review transcripts, check payment history, look for missing income forms, review credit eligibility, and organize a response package when the facts support one. For balance notices, we can help look at payment options and account status. For refund notices, we can help trace what changed. For examination or proposed adjustment notices, we can help pull the records into a cleaner response.
The point is not to argue with every IRS notice. The point is to avoid guessing. If IRS Notice CP 278 is correct, the taxpayer needs a practical plan. If it is wrong, the response should be specific enough for the IRS to fix the account. If it is partly right, the taxpayer may need to separate the agreed items from the disputed ones.
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What does IRS Notice CP 278 actually mean?
An IRS Notice CP 278 means the IRS denied your Form 8832 entity classification election because you filed it late. Specifically, the CP 278 tells you the agency could not accept the effective date you requested on Form 8832 because the form was not filed within 75 days of the election date you wrote on it. The IRS returns your Form 8832 to you in a separate letter, so the CP 278 itself is the explanation and the returned form is the rejected paperwork. If you have a CP 278 in your hands, the election you tried to make, say an LLC choosing to be taxed as a corporation, did not take effect on the date you wanted. The notice is short, often a single page, and the language is dry, but the consequence is real.
Here is the mechanics behind a CP 278. Form 8832 lets an eligible entity choose how it is treated for federal tax purposes. An LLC defaults to a disregarded entity if it has one owner or a partnership if it has two or more, and Form 8832 is how that LLC elects out of the default and into corporate treatment. The catch is timing. The election generally cannot take effect more than 75 days before the form is filed and cannot take effect more than 12 months after it is filed. Miss that 75 day backward window and the IRS issues a CP 278 rather than honoring the date you requested. We see this every year with new LLCs whose owners marked an effective date of January 1 but mailed the Form 8832 in late April, well past the 75 day mark. The owner did everything else right and still got a CP 278.
Worked example. Suppose your single member LLC wanted C corporation treatment effective January 1, 2026. To get that January 1 date honored, your Form 8832 had to be filed within 75 days, meaning by roughly March 17, 2026. If you mailed it April 20, 2026, the January 1 effective date is dead and the IRS sends a CP 278. The election is not gone forever, but the date you wanted is rejected and you have to either pick a new prospective date or pursue late election relief. A common mistake we see is owners assuming the postmark date counts as the effective date, when in fact the effective date is whatever you wrote in Part I, line 8 of the form, and that date is what triggers the 75 day test on a CP 278. Another version of the same error is writing a January 1 date out of habit on a form prepared in spring, which guarantees a CP 278 before the envelope is even sealed.
The CP 278 is not a bill and it is not a penalty notice. It does not assess tax, it does not threaten a lien, and it does not start a collection clock. It is purely an administrative rejection of an election date. That distinction matters because a CP 278 should not scare you into paying anything. What it should do is push you to refile correctly. You can confirm the exact wording on the official IRS sample at the IRS CP 278 notice PDF, and you can read the background on the election itself at About Form 8832 on irs.gov. If your CP 278 has you unsure whether your entity is now taxed the way you intended, that is exactly the kind of question our corporate returns team sorts out before a return gets filed on the wrong basis. The short version of a CP 278 is simple. Your election was late, the date you wanted was denied, and you need to refile or request relief before the planning you built around it falls apart.
Why did I get an IRS Notice CP 278?
You got an IRS Notice CP 278 because your Form 8832 was filed too late to honor the effective date you requested. The single reason the IRS issues a CP 278 is the 75 day rule. Your entity classification election cannot take effect more than 75 days before the day the form is filed. When the date you wrote on line 8 of Form 8832 falls outside that 75 day backward window, the IRS cannot accept it, so it denies the election date and mails you a CP 278. There is no other trigger for this particular notice. It is a timing rejection, full stop, and that is oddly good news because timing problems have clean fixes.
Walk through why the timing trips people up. Most owners file Form 8832 because they want a specific tax result tied to a specific date, usually the start of a tax year. An LLC wanting S corporation treatment, for instance, often files Form 8832 alongside or as part of the S election so the corporate classification lines up with January 1. The problem is that people prepare these forms around tax season, which is months after January 1. By the time the form is signed and mailed, the 75 day window for a January 1 effective date has already closed. The IRS does not bend the window, it sends a CP 278. We see this every year with clients who formed an LLC in the prior year, got busy, and only addressed the election when their accountant asked about it in March or April. The intent was fine. The calendar was not.
Worked example with real timing. Your two member LLC formed in November 2025 and you wanted partnership to corporation treatment effective January 1, 2026. The 75 day window for that January 1 date runs out around March 17, 2026. You signed Form 8832 on March 30, 2026 and mailed it April 2, 2026. Because April 2 is past the 75 day mark measured from January 1, the requested date is denied and a CP 278 lands in your mailbox a few weeks later. Nothing about your reasoning was wrong. The entity is eligible, the form was filled out correctly, the choice was valid. The only flaw was the calendar, and the calendar is the entire basis of a CP 278. If you had instead written an effective date of April 2, 2026 or a near future date, the same form would have sailed through with no notice at all.
A common mistake we see is treating the formation date or the date the state approved your LLC as the relevant date for the 75 day test. It is not. The CP 278 test runs off the effective date you requested on the form, not your formation date. Another frequent slip is filing Form 8832 and a late S election together and assuming relief provisions automatically apply, when in fact you have to specifically invoke the relief language. A third is forgetting the signature line, which can bounce a form for an entirely separate reason. If you want to understand how the IRS treats LLCs that elect corporate or partnership status, the IRS explains the default rules and the election at LLC filing as a corporation or partnership, and general guidance on reading any IRS notice including a CP 278 sits at Understanding your IRS notice or letter. When a CP 278 shows up because the election timing got away from you, our tax compliance group is who you want rebuilding the filing so the entity ends up taxed the way you actually intended.
How much do I owe and what is the deadline on a CP 278?
You owe nothing on a CP 278 and there is no payment deadline, because a CP 278 is not a bill. This is the part that confuses people most. A CP 278 carries no balance due, no penalty amount, and no interest. The IRS is not asking you for money. It is telling you that an election date was denied. So if you are scanning the CP 278 looking for an amount to pay by a due date, there is not one. The notice exists to reject your Form 8832 effective date, not to collect anything, and treating it like a collection notice only sends you down the wrong path.
That said, there is a practical clock you should care about even though the CP 278 does not print a hard deadline on its face. If you still want the entity classification you tried to elect, you have to refile Form 8832 with a date that works, or pursue late election relief, and the relief route does have a real time limit. Under Revenue Procedure 2009-41, you can ask for relief on a late filed Form 8832 only if three years and 75 days have not passed since the requested effective date. That three years and 75 days is the true deadline hiding behind a CP 278. Blow past it and the clean relief path closes, leaving you with messier and more expensive options like a private letter ruling, which can run thousands of dollars in user fees and professional time.
Worked example. Your CP 278 denied a January 1, 2026 effective date for your LLC electing C corporation status. You have until roughly mid March 2029, which is three years plus 75 days after January 1, 2026, to file a corrected Form 8832 under Rev. Proc. 2009-41 with the proper reasonable cause statement and the phrase FILED PURSUANT TO REVENUE PROCEDURE 2009-41 written at the top. If you simply want a fresh prospective election instead, you can refile any time and pick a date within the allowed window going forward, no relief language needed. So the real answer to how much and by when on a CP 278 is zero dollars now, and the operative deadline is the three years and 75 days relief window if you want the original date back. Inside that window the fix costs you postage and preparation. Outside it, the fix costs you a ruling request. One more timing point worth holding onto. The 75 day forward and backward limits on Form 8832 are separate from the three year relief window, so even after a CP 278 you can always make a brand new election effective up to 75 days back from a future filing date, which often covers a clean January 1 start if you act early in the year. The trap is only the original retroactive date, and that is the one the relief window protects.
A common mistake we see is owners filing a corporate return for the year they wanted the election while the CP 278 sits unresolved, which creates a return filed on a classification the IRS never accepted. That mismatch can generate follow up notices and amended returns. Another frequent error is missing the consistent filing requirement, since Rev. Proc. 2009-41 requires that affected parties filed consistently with the intended classification. The relief is not automatic just because you are inside the three year window, every condition has to be met. For the formal relief criteria the IRS references on the notice itself, see the official CP 278 notice text, and confirm the election basics at About Form 8832. If a CP 278 left you unsure whether your already filed returns match your intended classification, our corporate returns team reconciles the two before the IRS does it for you.
How do I respond to or fix an IRS Notice CP 278?
You respond to a CP 278 by refiling Form 8832 the right way, and you have two clean paths depending on whether you still need the original effective date. If you only need the classification going forward, complete a fresh Form 8832, choose a prospective effective date that sits within the allowed window, sign and date it, and mail it in. That fixes a CP 278 with no special language because you are simply making a timely election for a new date. If you still need the original date the CP 278 denied, you go the late election relief route under Revenue Procedure 2009-41, which is more involved but recovers the date you wanted. Pick the path that matches what your already filed or soon to file returns assume.
Here is the relief mechanics behind a CP 278. To qualify under Rev. Proc. 2009-41 you must meet every requirement. The entity did not timely file the original Form 8832. All affected parties signed a declaration of consistent filing. The entity either has not yet had its return due for the initial election year, or it timely filed within six months of the due date consistently with the intended classification, or it is not required to file and each affected person filed consistently. The entity has reasonable cause for the late filing. Three years and 75 days have not passed since the requested effective date. And the corrected Form 8832 carries the statement FILED PURSUANT TO REVENUE PROCEDURE 2009-41 across the top with a reasonable cause declaration attached. Hit all of those and the IRS treats your election as if it had been timely, which is exactly the result a CP 278 took away from you.
Worked example. Your LLC got a CP 278 denying a January 1, 2026 C corporation election. You gather signatures from all members for the consistent filing declaration, write a short reasonable cause statement explaining the delay, such as the formation paperwork lagging and the prior preparer never filing the form, and you prepare a new Form 8832 with FILED PURSUANT TO REVENUE PROCEDURE 2009-41 typed at the top and line 8 still showing January 1, 2026. You confirm you are inside the three years and 75 days window, which you are, and you mail the package to the same service center listed on your original. Done correctly, the IRS reverses the denial and your January 1, 2026 classification stands. A common mistake we see is a thin or generic reasonable cause statement. I told my accountant is not reasonable cause. You need a real chronology of what happened and why the form slipped, written in plain facts and dates.
One more edge case worth flagging on a CP 278. Foreign entities making a simultaneous S election and entity classification election follow Revenue Procedure 2010-32 instead, with its own statement and amended return requirements. Do not mix the two procedures, because the IRS will treat a mislabeled filing as if no relief was requested. For the form itself and where to send it, start at About Form 8832 on irs.gov, and read how the IRS frames responding to any notice at Understanding your IRS notice or letter. Because a botched relief filing can leave your entity taxed the wrong way for years, this is a spot where it pays to have our tax compliance team draft the reasonable cause statement and assemble the package. Practically, the cleanest filings we send back to the IRS attach the original CP 278 and the returned Form 8832 as a cover so the agent can see exactly what was rejected and why the corrected version cures it. That small step cuts back and forth and speeds the reversal. If you want us to handle a CP 278 from start to finish, reach out through our new client inquiry page and send over the notice plus the returned form.
What happens if I ignore an IRS Notice CP 278?
If you ignore a CP 278, nothing gets seized and no penalty hits you, but your entity stays stuck in its default tax classification, which is usually the opposite of what you wanted. Because a CP 278 is not a bill, ignoring it does not trigger liens, levies, or collection. There is no balance to grow. The damage from ignoring a CP 278 is quieter and arguably worse. The election you tried to make simply never happened, so your LLC keeps being taxed as a disregarded entity or a partnership instead of the corporation you intended, and every downstream tax decision you made assuming corporate treatment is now built on sand.
Think through what that default classification costs you. Say you wanted C corporation status to take advantage of the flat 21 percent corporate rate and to retain earnings inside the entity, or you wanted S corporation treatment to split income between wages and distributions and cut self employment tax, which runs 15.3 percent on net earnings. Ignore the CP 278 and you get none of that. A single member LLC that ignored its CP 278 keeps reporting all profit on Schedule C of the owner 1040, exposed to the full 15.3 percent self employment tax up to the Social Security wage base of 184,500 for 2026 and the 2.9 percent Medicare portion with no cap above that. The planning you counted on evaporates, and you usually do not find out until the return is being prepared and the numbers come in wrong.
Worked example. Your two member LLC earned 200,000 of net profit in 2026 and you intended S corporation treatment so the owners could take reasonable salaries of 90,000 each and pull the rest as distributions free of self employment tax. You got a CP 278, set it aside, and never refiled. Result, the LLC files as a partnership, both members pay self employment tax on their full distributive shares, and you lose the distribution savings entirely. On roughly 20,000 of profit that could have been distribution rather than wage per owner, that is real money in self employment tax left on the table, repeated every year the election is missing. A common mistake we see is owners discovering this two or three years later, by which point the three years and 75 days relief window from the original CP 278 may have closed, forcing a costly private letter ruling to fix what a timely refile would have solved for the price of postage.
The other thing that happens when you ignore a CP 278 is return mismatch risk. If you already filed a return assuming the corporate classification the CP 278 denied, that return is inconsistent with how the IRS sees your entity, and that inconsistency can spawn its own notices and amended returns down the line. You can end up unwinding a year of bookkeeping and refiling on the correct basis, which is far more work than the original election would have been. Worse, payroll you ran assuming an S corporation, including owner wages and the related employment tax deposits, may no longer line up with how the entity is actually classified, creating a second cleanup on top of the income tax mismatch. The fix is never to ignore a CP 278. Refile Form 8832 promptly, either prospectively or under the relief procedure, while the window is open. You can review the relief deadlines on the IRS CP 278 notice itself and the classification defaults at LLC filing as a corporation or partnership. When a CP 278 is sitting unaddressed and you are not sure how much tax it is quietly costing you, our corporate returns team can run the comparison and get the election refiled before the door closes.