How to Address a CP23 Notice

A CP23 notice is a common form letter sent by the IRS to taxpayers. They normally include a balance that is due to the IRS. Perplexed, the client contacts a tax professional to understand why they may have received this notice.

The solution and answer to this has to do with payment allocation. The typical candidate for this type of notice falls into several categories:

  • Taxpayers that pay quarterly estimated taxes

  • Taxpayers that pay an estimated (or computed) amount along with their extension to file before April 15th

  • Taxpayers who have withheld tax or who have multiple W2s or sources of income

Essentially, what is happening here is the IRS is disputing the amount paid in for estimated taxes. Confused, the client cries, “but I sent them the money - here, you can even see it on my bank statement and I even have a cleared check!”

The problem commonly is not that the payment was not sent - the problem normally is that the payment was applied to the wrong period. Often, taxpayers will login online to pay their 2017 taxes in Jan of 2018, but during the drop-down prompt process on the IRS website they will select 2018 instead of 2017. Therefore, their payment is allocated to the incorrect year.

This is also common when a taxpayer is filing multiple years of back taxes & making payments on the IRS.GOV/PAYMENTS website. It is very easy for non-tax professionals to be confused.

Another instance of this error occurs when mailing quarterly checks. The taxpayer may not know which address to send the payments to, causing delays, or otherwise does not submit the appropriate information at the time of mailing the check. The appropriate information should include:

  • The taxpayer’s SSN, or that of their spouse in cases where a joint return is filed

  • The quarter of the year being filed. For example, “Q3 of tax year ending 12/31/2018.”

This is also common for taxpayers (or preparers) using software packages that pre-suppose estimated tax compliance based on prior year returns. Some professional packages, such as ITO proconnect tax online by intuit, are known to set up preparers and their clients for this error by computing and carrying forward these amounts to next year. When the preparer files, unless they have specifically checked line 65 or 70 on form 1040, the client will receive that notice. It can also be created due to a misunderstanding of estimated payments between the client and tax professional.

If you have received this notice, please do not hesitate to contact us directly anytime at hello@dimovtax.com. As with any penalty letter, please do send us all pages of the letter received so we can most quickly and accurately determine source of matter & steps necessary for resolution.

George Dimov