A CP161 notice is issued by the IRS if the taxpayer failed to pay their full tax balance. Once they have calculated your income, tax credits, and deductions, they may deem that your original amount was less than what you owed. Or, if you underpaid, this notice displays the withstanding amount. Through mail is how the IRS contacts you, so do not fret if you are worried that you missed calls or other correspondence. This is likely the first time they have tried to contact you.
Lastly, we encourage you not to lose sleep over this notice. While it absolutely must be addressed, often the IRS is simply looking for you to rectify issue. It is not yet urgent. However, do ensure that you identify that deadline they have provided you to pay. Commonly, the deadline is 10 days for the IRS notice CP161. If you’re confused, again, worry not, we are here to guide you in understanding your CP161 notice.
What Is My First Step?
Your first step is to read through the notice carefully. It will explain, in detail, exactly how the IRS produced their calculations and the amount in which you owe. Compare it with your original tax return and any payments you have made; the IRS can indeed make mistakes. If you find that the information is correct (mathematically), then be sure to revisit your original return. While the IRS could be right in their calculations, you could have made a mistake on your end. In which case you would submit an amended tax return to rectify the situation.
How Much Time Do I Have For My IRS CP161?
Typically, with the notice CP161, you have ten days to, at the very least, respond. If you cannot pay your taxes in this time, or if you are still trying to work out the angle you plan to take, know that you must respond to this notice within the deadline. Even if this is only to notify the IRS of your current situation. If it is not addressed, penalties and interest can accrue. Further, the IRS can take it upon themselves to escalate the situation. You may want to issue an IRS power of attorney and have a professional spearhead the touch point communication.
What If I Can’t Pay?
It is understandable if you cannot pay the amount owed. This happens to be the reality of many taxpayers. Thus, the IRS is not merciless. They have multiple programs in place to assist taxpayers with their tax debts. In which case, you may opt for an IRS payment plan. Or you could seek offer in compromise help. Despite, a call to the IRS at the number provided on the notice will give you valuable information for alternatives. An IRS representative can walk you through what your options are—again, worry not, there always alternatives. Just be sure to communicate.
What If I Disagree?
If you happen to review the notice only to decide against the information stated, then there are different actions you can take. The first step it to compile all documents that support your claim. This could be anything from an amended tax return, check receipts, to w2s and 1099s. Then, we encourage you to hire an IRS tax lawyer.
It is paramount that you have the proper representation when handling a situation in which the IRS has made a mistake. While you can certainly call into the IRS yourself, armed with the appropriate information, there does exist a science (or art) to these specific dealings. You do not want to lose your footing because you are unfamiliar with these dialogues.
Pay Your IRS CP161 Notice Online
Of course, if you agree with the notice and have the funds to cover the balance, it is paramount you do so. This can be done online on the IRS website and once they process the payment, the case will be closed, and they will no longer hold a withstanding amount. This is the easiest route to rectifying the issue. Unfortunately, it is not always realistic for taxpayers, which is why we are here to help.
Regarding payment, it is imperative that you know—if you decide to pay—that if you only cover a partial amount, interest and penalties will accrue on the outstanding amount once the deadline has passed. This means the IRS does not reward the taxpayer for simply making a payment, they must close the balance completely or come to a payment agreement to avoid penalties and interest. In some cases, however, the IRS will abate the penalties applied onto the taxpayer’s account.
Breaking Down the CP161 Notice
Every CP161 is going to be formatted the same way. The IRS is strict about uniform, in which case:
The header section will contain the notice number, date, your social security number, and the IRS contact number.
The body will provide tables and content that displays exactly how the IRS came to their calculations. This can include records of payments made, the total owed on the original tax return, and finally the outstanding amount that must be paid. This is what you will study to establish whether or not the information provided is correct.
The response section will be at the end of the IRS notice CP161. It will provide a coupon or notice you must mail along with your payment. Be sure, if you decide to mail a payment and not pay online, that you follow their exact prompt (be sure to write the appropriate contents in the memo of the check).
You may find yourself in frustration, asking why do we have to pay taxes? We understand the stresses that may arise when faced with an unexpected IRS notice. Fortunately for you, it is not black and white, and there are plenty of options for you to settle your debt. Reach out to a tax professional, take a breath, and evaluate your circumstance before making any assumptions.