The IRS sends a CP23 Notice when it believes you owe more money because you did not pay as much in estimated taxes as you stated on your tax return. This may be because the IRS didn’t apply a payment, the IRS lost a payment, or the IRS applied a payment to a different tax liability.
If you made a payment and the IRS did not apply it to your account, you will need to provide proof that you made the payment. This might include a canceled check, bank/credit card statements, or a receipt from the payment processor.
In some cases, the IRS might not credit your estimated tax payments received if you leave off what it was for. Every payment you send should have the correct tax form (usually 1040 or 1040-ES) and the tax year it’s for.
If you paid the total amount of taxes you owe but the payments posted weren’t credited to the right things, call the IRS to have your account adjusted.
The IRS will usually hold you responsible for lost payments such as a check that never arrived. For this reason, you should either pay online or use certified mail to ensure that you have a record of the IRS receiving your payment.
What if the IRS applied your payment to a different tax liability?
The IRS will generally apply estimated tax payments marked as such to that year. One exception is if you ask to apply a refund to future estimated taxes. Refunds are first applied to any adjustments to your tax return, then to previous tax debts, then to estimated taxes.
You may have received a CP10, CP10A, CP45, or similar notice telling you that all or part of your refund was being applied to an adjustment or debt.
If your payment was applied to different tax liability, you have three options:
- Make arrangements to pay the balance.
- Follow the instructions on your CP10, CP10A, CP45, or other notice to disagree with the changes. Note that you usually only have 30-90 days to do so.
- File an amended return to reduce your previous liability.
Note that the 2nd and 3rd options may result in additional interest and penalties on your current year balance due because of the time it will take to sort everything out
If you’re financially able, it’s generally best to pay the amount on your IRS notice CP23 now, and then try to get a refund for any payments that were applied to tax liabilities you don’t agree with.
What if the IRS makes a mistake on a CP23 notice?
There are a number of ways the IRS can make a mistake in applying your payments or calculating what you owe.
When the IRS receives checks or tax information in the mail, a human has to manually enter them. Even when things are supposed to happen automatically, the IRS computers are very old and may not match things up properly.
You can call the IRS or send a letter explaining the situation. The IRS will make the correction or explain why they still think they’re right and you’re wrong.
If they need more time to review your information or are too busy with other things, you may receive an IRS Letter 2645C telling you that they need more time to respond.
If you’re having trouble dealing with the IRS, aren’t sure if they properly followed the rules for applying payments, or aren’t sure if what they say you owe is correct, contact a CPA, Enrolled Agent, or tax attorney.
What if your reported estimated tax payments on your tax return were incorrect?
If you’ve gone through everything and figured out that your estimated payments were less than you thought and the IRS is right, you’ll have to make up the difference.
Check the math one more time, but you’ll usually owe the balance listed on your IRS Notice CP23. This will often include penalties and interest for not paying what you owe by the original deadline.
In some situations, you may be eligible to apply for penalty relief.
If you don’t pay the balance due by the date listed on your IRS notice, you may owe additional penalties. If you can’t pay your tax debt in full, consider setting up a payment plan. If you do nothing, the IRS may send you a certified letter warning you of a tax lien or other consequences.
If you have more questions, aren’t sure what you owe, or want to see if you can reduce your penalties, contact an experienced tax professional.