IRS Notice CP21A Explained: What It Is and What To Do

IRS Notice CP21A is a notice from the IRS to a taxpayer that the IRS has made the changes to a given tax year that the taxpayer requested, and the taxpayer still has a balance due.

These changes could be the result of:

• Replacing the taxpayer’s IRS-prepared substitute for return (SFR) with an original return, as we did for our client who received this Notice CP21A.
• Requesting — and being approved for — penalty abatement.
• Numerous other things.

IRS Notice CP21A At a Glance

IRS Notice CP21A Explained, Part by Part

Here is a full explanation of the Notice CP21A, part by part.

Part 1: Billing Summary

On the first page of the Notice CP21A, you’ll see a reconciliation to the balance due that the IRS believes you owe.

Regardless of the changed you requested, the first line in this refund summary will be your “account balance before this change”; this was your official account balance per the IRS’s records before you requested the change to this tax year and the IRS approved it.

Then, you’ll see a line (or multiple lines) indicating changes due to whatever change you requested on your account.

For example, for the taxpayer whose Notice CP21A we’re using as an example in this article, this line says, “Decrease in tax” in the amount of $42,411; this is because the original return we filed with the IRS to replace the IRS-prepared SFR reduced the taxpayer’s balance for the notice year by this amount.

It’s also likely that due to the changes the IRS made to your account resulting in less tax due the IRS will reduce your penalties and interest since your penalties and interest are calculated based on your balance due; this is why you may see lines such as the following:

• Decrease in failure-to-file penalty: This penalty is assessed due to a taxpayer failing to file their tax return by its deadline (or extended deadline if they filed a valid extension). It is calculated as five percent of your balance due per the return (when it’s eventually filed), up to a maximum of 25%.
• Decrease in failure-to-pay penalty: This penalty is assessed due to a taxpayer failing to pay their taxes by the payment deadline. It is calculated as half a percent of the amount owed, up to a maximum of 25%.
• Decrease in interest: IRS interest is calculated on your total balance (including penalties and interest) and is compounded daily.

Part 2: Payment Coupon

Next, the IRS provides you with a payment coupon if you would like to pay off the tax for the year indicated on the notice in one lump sum.

Note that if you have the cash to pay off what you owe for some tax years but not others — and keep in mind that each year would be reported on a separate CP21A — it may be in your best interest to pay off some tax years before others.

Obviously, the IRS isn’t going to tell you this — they are simply going to insist that you pay off everything by their deadline.

Part 3: What the IRS Says You Need to Do Immediately

Next, the IRS tells you what you need to do depending on whether you agree or disagree with the changes the IRS made to your account as reconciled in your billing summary.

If you agree with the changes, then you have to deal with your balance due somehow:

• You can, of course, pay the balance in full if you have the means.
• Or you can pursue your tax relief options.

If you don’t agree with the changes the IRS made to your account, the IRS instructs you to call a phone number to discuss your account with a representative.

Part 4: Payment Options

The fourth part of this Notice CP21A talks a bit about the methods by which you can pay your tax bill.

And importantly, the IRS states that if you can’t pay your balance in full now, you still have some options.

Installment agreement, offer-in-compromise, and a temporary collection delay could be eligible avenues for you to explore, depending on your circumstances.

Part 4: Interest Charges

This part details the process by which the IRS charges interest on your tax bill, as well as the specifics of the interest charges on your account for each applicable period.

As noted here just above the table of charges, the IRS may be presenting interest charges here that are later removed from your total bill, after the adjustment has been made.

If you’re confused at all about the total amount of interest you owe, just refer to the billing summary at the top of the notice.

Part 5: Additional Information

Finally, at the end of the CP21A Notice, the IRS provides some additional information, such as:

• The official IRS webpage for the CP21A Notice
• Where you can obtains tax forms, instructions, and publications
• How to contact the IRS
• That you should keep this notice for your records

Why the IRS Sends Notice CP21A

The IRS sends Notice CP21A to inform a taxpayer that the IRS has determined that, though it has approved the changes the taxpayer requested it make to their account (presumably resulting in a reduction in tax owed), the taxpayer still has a balance due for the year in question.

What to Do If You Received Notice CP21A From the IRS

Below are the steps you should take after you receive a CP21A Notice.

For more information about each of these steps, check out our article How to Fight the IRS and Win.

Step 1: Check the CP21A Notice for accuracy.

Don’t assume that the IRS did their math correctly — review the IRS’s numbers against your own.

Step 2: Correct any errors with the IRS.

If you do find an error in the IRS’s math, take it up with them.

There should be phone numbers in the CP21A Notice itself that you can call to discuss your disagreement with the IRS’s numbers:

• For example, in the “What you need to do immediately” section, there will likely be a phone number that you can call to “discuss your options.”  If you disagree with the tax amount itself, call this number.
• In the “Penalties” section, there should be a number indicated that you can call to obtain a “detailed calculation of your penalty charges.”  If you disagree with the IRS’s penalty calculation, call this number.

You can always reach out to us at at 866-8000-TAX to go to bat against the IRS for you.

Step 3: Seek penalty abatement.

For most of our clients with penalties on their account, we at least seek some sort of penalty relief for them.

Sometimes the IRS grants it; sometimes they don’t.

But it’s generally at least worth a shot.

For more information about seeking abatement for the penalties on your account, check out this article.

Step 4: Pay the balance due OR seek tax relief.

Finally, you have to figure out what to do with the amount you owe the IRS after you’ve cleared up any disagreements with them concerning the amount as well as obtained any possible penalty relief for your account.

You can, of course, pay off your balance in full.  This will (obviously) stop future penalties and interest from accruing.

However, a better option — if you qualify for it — is an offer in compromise.  An offer in compromise is an agreement you make with the IRS in which the IRS agrees to accept a lower amount to satisfy your tax debt than you actually owe.

That said, not all taxpayers qualify for an offer in compromise, so there are other options, such as a temporary hardship placement called currently not collectible status as well as installment agreements for taxpayers who wish to pay their balance over time.

For an overview of how tax relief works, read our article What Is Tax Relief and How Does It Work?.

Author:

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Logan Allec, CPA, Founder and Owner

Logan Allec has been serving taxpayers as a CPA for over 14 years. After leaving his role at a "Big 4" firm, he started Choice Tax Relief to help everyday Americans who have found themselves behind on their taxes. He also educates thousands of people daily about tax relief on his YouTube channel. In addition to his CPA license, Logan also has a Master's Degree in Taxation from the University of Southern California (USC). He lives with his wife and children in the Los Angeles area. Learn more about Logan here.

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