IRS Notice CP21C Explained: What It Is and What To Do

IRS Notice CP21C 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 as a result the taxpayer’s balance for the year is zero or minimal.

These changes could be the result of:

• Requesting — and being approved for — penalty abatement, such as we did for our client who received this Notice CP21C.
• Amending a tax return to report business expenses that were not properly deducted on the taxpayer’s original return, such as we did for our client who received this Notice CP21C.
• Filing an original return to prepare a substitute for return (SFR) prepared by the IRS, such as we did for our client who received this Notice CP21C.
• Numerous other things.

IRS Notice CP21C At a Glance

IRS Notice CP21C Explained, Part by Part

Here is a full explanation of the Notice CP21C, part by part.

Part 1: Account Summary

The first thing you’ll see on your CP21C notice is your account summary, or a reconciliation to the amount you owe (or are owed) for the year for which the notice was issued.

In the majority of CP21C notices, this account summary will balance to zero.

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 CP21C we’re using as an example in this article, this line says, “Decrease in tax” in the amount of $30,380; this is because we filed an amended return for this client to deduct over $100,000 of business expenses that our client’s previous accountant mistakenly did not include on his tax return.

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: What You Need to Do

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 should either pay the (small) balance you owe, wait for the (small) refund you are due, or simply do nothing if your balance for the year is now zero.

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 3: Additional Information

Finally, at the end of the CP21C Notice, the IRS provides some additional information, such as:

• The official IRS webpage for the CP21C 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 CP21C

The IRS sends Notice CP21C to inform a taxpayer that the IRS has approved the changes the taxpayer requested it make to their account (presumably resulting in a reduction in tax owed), and now the taxpayer now has a zero balance for the year, a minimal balance for the year, or is owed a minimal refund for the year.

What to Do If You Received Notice CP21C From the IRS

Below are the steps you should take after you receive a CP21C Notice.

Step 1: Check the CP21C 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 CP21C 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: Pay the balance due, wait for your refund, or do nothing.

After going through the previous two steps, if you still have a balance due remaining, go ahead and pay it — it is likely a small amount.

If you are owed a refund, you’ll have to sit tight and wait for that refund check to come (assuming the refund doesn’t get applied to some other tax year for which you have a balance due).

Of course, if your CP21C Notice indicates no balance or refund due — i.e., your account summary at the top of the notice zeroes out — then there’s nothing more for you to do other than save the notice in your files for recordkeeping purposes.

Author:

---

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.

• 
• 
•