What Is IRS Notice CP16 and What Should I Do?
Understand why the IRS changed your tax return, creating an overpayment that was then applied to a separate, outstanding tax liability you owed.
An IRS Notice CP16 informs you that the IRS has made changes to your most recent tax return, and these adjustments resulted in a refund you were not expecting. The notice also explains that this new refund, or overpayment, was not sent to you but was instead used to pay a different tax debt you owe. The CP16 is a notification of a correction and an application of funds, detailing the changes the IRS made and clarifying where the resulting money went.
Understanding the Changes to Your Tax Return
The first part of a CP16 notice explains that the IRS identified a miscalculation or error on your filed tax return. These are often clerical or mathematical mistakes. For example, errors can occur when calculating deductions or credits, such as claiming the wrong amount for the Child Tax Credit or miscalculating the allowable deduction for student loan interest.
The notice will provide a side-by-side comparison, showing the figures you reported on your Form 1040 and the corrected figures determined by the IRS. The IRS may have received information from third parties, like employers on Forms W-2 and 1099, that conflicts with the information on your return. These discrepancies trigger an automatic correction process.
Explaining the Application of Your Overpayment
After detailing the adjustments to your return, the CP16 notice explains that the resulting overpayment was used to satisfy another outstanding tax liability. This action is known as an offset. The notice specifically addresses offsets applied to past-due federal tax debts owed directly to the IRS. This could be an unpaid tax bill from a previous year, along with any accrued penalties and interest associated with that debt.
It is important to distinguish a CP16 offset from the broader Treasury Offset Program (TOP). The TOP is administered by the Treasury Department’s Bureau of the Fiscal Service and collects debts for other federal and state agencies. These non-tax debts can include past-due child support, state income tax, or defaulted federal student loans. If your refund were applied to one of these, you would receive a notice from the Bureau of the Fiscal Service, not an IRS Notice CP16.
The CP16 confirms that your overpayment stayed within the IRS system to cover a prior federal tax obligation. The notice will specify the tax year of the debt that was paid and the amount of the overpayment applied. If the overpayment exceeded the debt, the IRS will issue the remaining balance to you as a refund. Conversely, if the overpayment only partially covered the old debt, a balance will remain due.
Required Actions and Response Options
Upon receiving a CP16 notice, you must decide whether you agree or disagree with the IRS’s findings. If you review the notice and your own records and find that the changes and the application of the overpayment are correct, no further action is required on your part. You should, however, update the copy of your tax return for your personal records to reflect the corrections made by the IRS.
If you disagree with the adjustments, you must respond to the IRS before the deadline printed on the notice, which is typically 60 days from the date of the notice. Failing to respond in a timely manner means you lose certain appeal rights, and the IRS will not reverse the changes without substantial documentation. Your response should be directed to the specific phone number or address provided in the “What to do if you disagree with our changes” section of your CP16.
To prepare your dispute, gather all relevant documents that support your original tax return figures. This may include receipts for deductions, corrected calculation worksheets, or copies of Forms W-2 or 1099 that verify your income and withholding. When you contact the IRS, clearly state which changes you dispute and provide the supporting evidence.