What Should You Do If You Receive an IRS CP23 Notice?

Receiving a CP23 notice from the IRS can be unsettling, as it indicates discrepancies between your tax return and what was reported to the IRS. This notification typically suggests that you owe additional taxes due to mismatches in payments or credits claimed.

Why CP23 Notices Are Sent

The IRS issues CP23 notices to address discrepancies between the estimated tax payments or credits reported on a taxpayer’s return and the amounts the IRS has on record. These discrepancies often result from errors in reporting estimated tax payments, misapplication of credits, or clerical mistakes. For example, if a taxpayer reports higher estimated tax payments than what the IRS records show, a CP23 notice will be generated to reconcile the difference.

Taxpayers may also receive a CP23 notice due to inconsistencies in credits like the Earned Income Tax Credit (EITC) or Child Tax Credit, which have specific eligibility criteria. If the claimed credit amount exceeds the IRS’s calculations based on the provided data, the notice will address this discrepancy. In some cases, third-party reporting errors—such as incorrect figures reported by employers or financial institutions—can also lead to a CP23 notice. Verifying the accuracy of third-party information is essential to prevent such issues.

Payment and Credit Details in a CP23

When you receive a CP23 notice, carefully review the payment and credit details it outlines. The notice provides a breakdown of discrepancies identified by the IRS, showing differences between the amounts you reported and what the IRS has on record. This allows you to understand where mismatches occurred, whether they involve estimated tax payments, credits, or other financial figures.

The notice highlights specific credits or payments in question, such as the Earned Income Tax Credit (EITC) or Child Tax Credit, and provides a comparison of your reported figures with the IRS’s calculations. This helps identify whether the issue stems from miscalculations, incorrect data entry, or overlooked information. The notice may also reference tax codes or regulations related to these credits to help clarify the issue.

Checking for Incorrect Withholding or Credits

To address a CP23 notice, scrutinize your withholding and credit information. Review your withholding allowances on Form W-4, as these impact the amount withheld from your wages. Errors in withholding setup can cause underpayment or overpayment of taxes, leading to discrepancies with IRS records. Check your pay stubs and year-end W-2 forms to ensure the amounts withheld match what you reported.

Verify the accuracy of credits claimed on your tax return. Tax credits like the Saver’s Credit or the Credit for Other Dependents can significantly affect your tax liability. Ensure you met all eligibility criteria and calculated the credit amounts correctly. For instance, the Saver’s Credit depends on retirement contributions and is subject to income limits. Adhering to these requirements can prevent miscalculations that might trigger a CP23 notice.

Consult IRS publications or tax software for detailed guidance on credit eligibility and calculations to identify potential errors. Cross-referencing your tax return with IRS guidelines can also help pinpoint discrepancies that may not be immediately apparent.

Communicating with the IRS

When a CP23 notice arrives, resolving the issue efficiently often requires contacting the IRS. Begin by reviewing the notice for contact instructions. The IRS typically provides a phone number for representatives familiar with your case. Have your tax records, including the CP23 notice, tax return, and supporting documents, ready to address questions promptly.

Written correspondence can also be effective, especially if you need to provide documentation or clarify discrepancies. When responding, be concise, clearly state your case, and include copies of relevant documents. Address your letter to the specific IRS office mentioned in the notice to avoid processing delays. Sending correspondence via certified mail ensures you can track its delivery and maintain a record of your communication.

Documentation to Keep

Proper record-keeping is essential when addressing a CP23 notice and safeguarding against future issues. Organize relevant documents, such as your original tax return, IRS correspondence, and evidence supporting the credits or payments in question. Keeping these documents systematically filed ensures quick access when needed.

Preserve documentation related to third-party reports, such as W-2 forms from employers, 1099 forms from financial institutions, and statements verifying income or payments. These are critical when discrepancies arise from incorrect third-party reporting. Additionally, retain copies of bank statements or canceled checks to substantiate claims about estimated tax payments or other financial transactions.