CP161 Notice: You Owe Unpaid Taxes

Content provided for general information. Talk to your advisor to confirm the details for your specific situation before taking action.

A CP161 notice is a bill from the Internal Revenue Service when you owe unpaid taxes.

One of the most common situations is you filed a tax return with taxes owed but didn’t make a payment at the same time. You may also receive a CP161 notice after the IRS previously notified you it made changes to your tax return.

You can review a sample CP161 notice here.

What are common reasons for getting IRS Notice CP161?

There are several reasons you may get an IRS letter that says you owe money.

  • You said that you owed taxes on your income tax return but never paid.
  • The IRS found that you didn’t qualify for the Earned Income Credit or should have gotten a lower amount.
  • You had a tax audit where the result was that you had additional tax assessed.
  • You failed to make a federal tax deposit as an employer.
  • You failed to pay your Section 965 tax liability as a shareholder of certain types of foreign corporations.
  • You failed to resolve an estimated tax discrepancy.
  • You had a dishonored check when you paid your taxes.

Check your notice for the tax form and tax year that it’s for. The IRS has several years to do an audit, and your notice may not be for the most recent return that you filed.

What if I already paid or started working with the IRS?

If you already made a payment or are working with the IRS to address the balance due, you can disregard the CP161 notice. It can take weeks for the IRS computers to get in sync plus the time it takes to mail things, so an IRS notice can be out of date.

Before you choose to disregard an IRS notice, it may be a good idea to call the IRS to double-check your account status is what you think it is. Keep in mind interest accrues until you pay your balance due in full.

In addition, there’s no pause on interest and penalties on unpaid tax if you’re disputing changes to your return. If you’re successful, this likely won’t matter because the IRS will remove wrongly applied interest and penalties. However, if you’re unsuccessful, waiting longer to pay could add interest and penalties to your balance due.

What if I disagree with the amount owed?

In almost all situations, the unpaid balance on a CP161 should match what the IRS thinks you owe. This would be either based on your original tax return or based on IRS adjustments. If the IRS made adjustments, you would disagree with that IRS notice rather than the CP161. If you failed to respond to a previous notice in time to disagree, you may still be able to file an amended return.

If the IRS sent a CP161 notice when you believe you already paid, the first thing you should do is call to see if they received the payment after they sent the notice. You may need to provide proof of payment if the IRS says they haven’t received it. If you paid online, you should have received a receipt. If you mailed a check, hopefully you sent it by certified mail.

If you aren’t sure if the IRS is right or what you need to do to prove them wrong, you may want to seek assistance from a tax professional.

What are my payment options?

You have several options to pay the tax debt shown on your IRS notice CP161.

  •  Pay now in full via check, direct deposit, or credit card.
  •  Installment agreement directly with the IRS to pay over time.
  •  Offer in compromise to pay less than the full amount when it would be impossible for you to pay in full now or in the future.
  •  Currently not collectible if your current financial status leaves you unable to pay now but you may be able to pay in the future.

What if I don’t pay?

If you don’t pay the balance owed, interest and penalties may continue to accrue. The IRS may file a federal tax lien, garnish your wages, or levy your bank accounts or other property. You will usually get a certified letter as a warning.

The most important thing to know is that the IRS is much more understanding and willing to work with you if you are making efforts to pay rather than ignoring them. With several payment options available, doing something is almost always better than doing nothing.

Is my tax preparation software responsible if I get charged a penalty?

You should check the terms of the software or tax preparer that you used.

In general, a tax preparer may be liable if they made a mistake. They are not liable if you entered things incorrectly or told them incorrect information that led to your underpaid tax.

How can I get help with a tax problem?

If you get IRS tax notices that say you owe money or receive notice of an examination audit, you should strongly consider contacting an experienced tax advisor. If you can’t afford to hire a tax pro, you may be eligible for free services through IRS Low Income Taxpayer Clinics.

Even if the IRS says you filed your taxes incorrectly, they may be wrong. As a taxpayer, you have the right to pay the correct amount of tax. If you were in the wrong, you may still have ways to reduce IRS penalties especially if you haven’t had a problem with your taxes before.

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