IRS NOTICE REFERENCE
Understanding your CP540 notice
You’re receiving this notice because you may be subject to backup withholding. This can occur if you haven’t filed Form 1040, U.S. Individual Income Tax Return , to report interest or dividend income and pay any taxes ow…
General information only. Not legal or tax advice.
Notice details
- Notice code
- CP540
- Category
- Underreporter / income matching
- Severity tier
- Tier 2 — Action or response expected. The IRS has taken or proposed an action and expects a response or payment.
- Governing law
- §6201; §6212 (Internal Revenue Code sections)
- Source
- IRS.gov — Understanding Your IRS Notice
What this notice is
You’re receiving this notice because you may be subject to backup withholding. This can occur if you haven’t filed Form 1040, U.S. Individual Income Tax Return , to report interest or dividend income and pay any taxes owed on that income.
Source: IRS.gov. Reproduced for reference. General information — not legal or tax advice.
What the IRS says to do
File Form 1040 , if you haven’t done so already. Review your Form 1040 for any underreported interest or dividend income. File Form 1040-X, Amended U.S. Individual Tax Return, if you need to report additional interest or dividend income. Pay any taxes owed on the interest or dividend income reported on your Form 1040 or Form 1040-X.
This is the IRS’s own guidance reproduced from the IRS notice page. It describes the IRS’s process — it is not legal or tax advice from TaxRiskOS.
Governing IRS procedure (Internal Revenue Manual)
The IRS’s own internal procedures for handling this notice type are documented in the Internal Revenue Manual:
- IRM 4.19.3 — 4.19.3 IMF Automated Underreporter Program
- IRM 4.19.2 — 4.19.2 IMF Automated Underreporter (AUR) Control
Reference to published IRS procedure. General information — not legal or tax advice.
Official IRS reference
Read the official notice page on IRS.gov: https://www.irs.gov/individuals/understanding-your-cp540-notice
Related tools
TaxRiskOS is workflow software for practitioners — it captures the notice, computes the deadline, surfaces the escalation tier, and builds a document checklist. It documents process; it does not give advice or draft responses.
Check this notice’s deadline (free tool)