IRS Notice CP21E – Changes to Your IRS Form 1040, Amount Due indicates that you have a balance due for the tax year indicated on the notice sent to you as a result of a recent audit. This type of notice falls under the category of “Return Accuracy”.

REASONS FOR RECEIVING NOTICE CP21E

Here are some reasons why you received IRS Notice CP21E. They include:

  • The IRS audited your tax return for a particular year.
  • The changes to your tax return specified in the notice resulted in a balance due. This means you now owe money on your taxes. This could affect any Income Tax Audits and Appeals that you are involved in, as well as IRS Tax Litigation or Tax Collections actions.
  • The CP21E explains the return changes and the balance due. The notice includes a report detailing all the changes from the audit.

STEPS TO TAKE AFTER YOU RECEIVE NOTICE CP21E

Whenever you receive a CP21E Notice, you should follow the following steps:

  1. Read the CP21E Notice and the Audit Report carefully. The Audit Report is a separate document, usually on IRS Form 4849. Take notes of the parts that identify the specific changes the IRS made to your return, explaining why the IRS made those changes, and explaining why the IRS believes you owe money on your taxes. The changes the IRS will likely involve the IRS’s assertion that you had more taxable income than was reported on your original return, and consequently now have a higher tax obligation. Changes the IRS made to your income are usually found on lines 1 through 4 of the Audit Report. Any penalties and interest the IRS assessed against you as a result of the changes it made to your return are usually found on lines 17 through 19 of the Audit Report.
  2. Even if you agree with the changes the IRS made, it may still be a good idea to have a tax professional/expert take a second look before you sign and return the Audit Report consenting to assessment of additional tax against you and collection of that tax from you. Signing and returning an Audit Report to the IRS can prevent you from requesting an Audit Reconsideration if information and documentation supporting your position that the IRS’s changes to your return are not correct come to light. If the tax professional you consult agrees that the best course of action is for you to agree to the changes, you should be sure to change the copy of your tax return that you kept to reflect the changes that were made, and then pay the tax and penalties owed in full by the date specified in the notice.
  3. If you agree but are not able to pay the full amount owed by the due date, pay as much as you can by the due date. You will need to make arrangements with the IRS with installment agreements for a payment plan to pay off the remaining balance you owe. It is wise to consult with a tax professional/expert to determine if it there is a reasonable opportunity to negotiate a reduction in the amount owed and/or get the IRS to withdraw some or all of the penalties it assessed. The facts and circumstances that will influence the outcome of such items are unique to each taxpayer and therefore must be presented to a tax professional for detailed analysis.
  4. If you do NOT agree with the changes the IRS made to your tax return and the amount the IRS says you now owe in taxes, the facts and circumstances in your case may warrant requesting an Audit Reconsideration. One key reason for requesting an Audit Reconsideration is when you have additional information and documentation that were not presented to the IRS agent during the audit. A tax professional can help you identify such supporting documentation and present it to the IRS in a way that is specifically designed to get the IRS to accept your request for Audit Reconsideration.

You can submit a request for Audit Reconsideration any time after an audit assessment has been made on your account and the tax remains unpaid. However, the IRS will not accept your request if you previously agreed to pay the amount of tax the IRS says you owe. You can refer to the IRS Publication 3598. You will find additional information about what you should know about the Audit Reconsideration Process.

Taxpayers need not worry about paying interest on taxes owed after an IRS Audit as long as they pay the amount after the Audit. Internal Revenue Service policies on taxes due following an audit are relatively easy on the taxpayer. For example, the IRS does not charge interest on a balance due following an audit, provided that the taxpayer pays promptly. In other circumstances, the IRS may even reduce the amount due. However, if you do not promptly pay the amount owed following an audit, the IRS usually charges both interest and a penalty.

The CP21E notice also includes a dated coupon to send in with your payment. Interest on the unpaid balance begins on the date on the coupon. You can find more information about this in IRS Bulletin 746 (Information about Your Notice, Penalty and Interest).

The good news about the IRS policy related to the CP21E notice is that you are not suddenly faced with interest that has accrued since the original due date for the tax year audited. If, as sometimes happens, the audited tax year is several years in the past, the interest accrued could have been substantial, so this is a substantial break. The bad news is, unless you pay everything owed on the CP21E notice by the coupon date, the IRS not only charges you interest, but a substantial penalty as well. Under certain circumstances, some relief from interest and penalties may be available for the 2012 tax year.

NOTICE DEADLINE – 21 days. If you miss the deadline, additional interest will accumulate and failure to pay penalties will be assessed.