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IRS CP21E Notice: Steps to Take After Unexpected Tax Changes

Silas Bamigbola avatar image
Last updated 10/29/2024 by
Silas Bamigbola
Fact checked by
Ante Mazalin
Summary:
The IRS sends the CP21E notice after auditing your tax return and making adjustments based on their findings. This notice could indicate that you owe additional taxes, are entitled to a refund, or that there has been no change to your tax balance. Although the outcome may vary, it is essential to carefully review the notice and any accompanying documents to ensure the information is correct. Promptly addressing the notice, especially if you owe money or disagree with the changes, can help avoid further penalties and ensure your records are up to date.
Struggling with IRS notices? If you’ve received an IRS letter and aren’t sure how to handle it, you might want to explore professional tax relief options. Optima Tax Relief has helped thousands of people resolve their tax issues and get back on track with the IRS. Learn more about how they can assist you with your situation.
Opening an unexpected letter from the IRS can be stressful, but there’s no need to panic. The CP21E notice is issued following an audit of your tax return and indicates that the IRS has made adjustments based on their findings. While these changes could result in a balance owed, a refund, or no change at all, it’s important to act promptly. Understanding what the notice means and knowing your options for responding can help you handle the situation effectively and avoid further complications. Let’s break down everything you need to know to address the CP21E notice confidently.

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What is an IRS CP21E notice?

The IRS issues an IRS CP21E notice after conducting an audit of your tax return. The audit may uncover discrepancies that lead to changes in your tax liability. These changes could result in a balance owed, a refund, or no change at all. The notice will specify the outcome and detail any required next steps.
The IRS CP21E notice is typically triggered by inconsistencies or red flags in your tax return, such as misreported income, incorrect deductions, or missing information. Once the audit is complete, the IRS recalculates your taxes and sends the CP21E notice to explain the changes.
It’s important to understand that receiving this notice does not automatically mean you owe the IRS money. The outcome will depend on the nature of the changes discovered during the audit.

Reasons for receiving an IRS CP21E notice

Receiving an IRS CP21E notice means the IRS has made adjustments to your tax return following an audit. The notice explains these changes, which may involve corrections to deductions, income reporting, or other financial details you provided.
Here are common reasons for receiving an IRS CP21E notice:
  • Unreported or misreported income: The IRS may have identified income that you did not include on your original return.
  • Incorrect deductions or credits: If you claimed deductions or credits for which you were not eligible, the IRS will adjust your return accordingly.
  • Math errors: If there were mistakes in the calculations on your return, the IRS will correct your tax liability.
The IRS CP21E notice provides a clear overview of the audit results and explains how your tax return was changed. The specifics can vary depending on the type of errors or omissions identified by the IRS.

Pro Tip

Before applying for an Offer in Compromise (OIC), ensure your tax returns for previous years are filed and up to date. This can improve your chances of getting an OIC approved, as the IRS generally requires compliance with all tax filings.

How to respond to an IRS CP21E notice

Step 1: Carefully read the IRS CP21E notice

After receiving an IRS CP21E notice, your first task is to read it carefully. The notice will explain what changes the IRS made to your return, whether you owe a balance, and when payments are due. The attached audit report provides details on why the changes were made and guides you through the next steps.

Step 2: Agreeing with the IRS CP21E notice changes

If you agree with the changes the IRS made, your response depends on whether you owe money, are due a refund, or owe nothing.
  • If you owe money: Make sure to pay the amount by the specified deadline. The notice includes payment instructions, including options for setting up payment plans if you cannot pay in full right away.
  • If you’re due a refund: Expect to receive your refund within two to three weeks from the date of the notice.
  • If there’s no balance change: No further action is needed. However, keep the notice and revised tax return for your records.

Step 3: Disagreeing with the IRS CP21E notice changes

If you don’t agree with the changes outlined in the IRS CP21E notice, there are several ways to resolve the issue:
  • Request an audit reconsideration: If you have new information the IRS didn’t consider during the audit, you can request an audit reconsideration. See IRS Publication 3598 for more details.
  • File a formal appeal: If you disagree with the audit’s findings but don’t have new information, you can file a formal appeal using IRS Publication 5.
  • File an amended tax return: If you’ve already paid the amount due but still disagree with the changes, you can file Form 1040X, Amended U.S. Individual Income Tax Return.

Pro Tip

Always keep copies of your CP21E notice and any communication with the IRS. These records are essential for reference if you need to appeal the decision, request reconsideration, or resolve any future tax issues.

What to do if you can’t pay the full amount after receiving an IRS CP21E notice

If the IRS CP21E notice says you owe a significant amount and you can’t pay it all at once, don’t panic. You have several options to manage your tax debt.

Installment agreement for your IRS CP21E notice

The IRS provides installment agreements to help taxpayers pay off their debt gradually. You can follow the instructions in the notice to set up a payment plan or contact the IRS directly. Keep in mind, you may need to submit financial information to determine your eligibility for the plan.

Offer in compromise after an IRS CP21E notice

If paying the full amount is not feasible, you can apply for an Offer in Compromise (OIC). This allows you to negotiate with the IRS to settle your debt for less than the total owed, based on your financial situation. Applying for an OIC can provide relief if you meet specific criteria.

Interest and penalties related to your IRS CP21E notice

Keep in mind that interest and penalties will continue to accumulate on unpaid balances. The longer you delay payment, the more these charges will increase. If you can’t pay everything by the deadline, make a partial payment to reduce the balance, and set up a plan for the remaining amount.

Innocent spouse relief

In some cases, the tax changes noted in a CP21E notice may result from actions taken by your spouse, possibly without your knowledge. If this applies to you, you might qualify for Innocent Spouse Relief. This can relieve you of the responsibility for paying the tax debt.
To request Innocent Spouse Relief, file Form 8857, Request for Innocent Spouse Relief, within two years of the IRS’s first attempt to collect the tax. For more details, refer to IRS Publication 971, which outlines how to apply for this relief.

Pro Tip

If you can’t pay the full amount you owe after receiving a CP21E notice, consider applying for an IRS installment agreement as soon as possible. Doing this quickly can help you avoid additional interest and penalties while giving you more time to settle the debt.

Potential outcomes after responding to IRS CP21E notice

After you respond to a CP21E notice, the outcome depends on the IRS’s review of your information. Here are some potential outcomes:

Your return is adjusted and you owe money

If the audit reveals you underpaid taxes, the IRS will adjust your tax return and confirm you owe more money. You will need to pay the amount by the deadline listed in the notice. If you can’t pay the full amount, you can arrange a payment plan to avoid penalties and further interest.

Your return is adjusted and you are due a refund

In some cases, the IRS audit may show that you overpaid taxes or were entitled to deductions or credits that weren’t included initially. If this is the case, you will receive a refund. Typically, refunds are issued within two to three weeks of receiving the notice.

No changes to your return

If the IRS reviews your response and finds that their initial changes were unnecessary, your original tax return may remain unchanged. This means no additional payment is required, and no refund will be issued.

You disagree and appeal the decision

If you disagree with the changes made by the IRS and submit additional information, the IRS may reconsider the audit results. You can request an audit reconsideration or appeal the decision. The IRS will review your case based on the new information, which could lead to a revised outcome, such as a reduced balance or a change in your refund status.

Penalties and interest if no action is taken

Ignoring the CP21E notice can lead to penalties and interest accumulating on any unpaid taxes. The IRS may take enforcement actions, such as garnishing your wages or placing liens on your assets. To avoid these consequences, it’s crucial to respond promptly and resolve any issues related to your tax return.
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Frequently asked questions

What should I do if I disagree with the changes?

If you have new information that the IRS didn’t consider during the audit, you can request an audit reconsideration. If you don’t have new information but still disagree with the findings, you can file a formal appeal or submit an amended return if you’ve already paid the amount due.

What happens if I can’t pay the full amount I owe?

The IRS offers installment agreements that let you pay off the balance over time. You can also apply for an Offer in Compromise to settle your debt for less than the amount owed if you meet eligibility criteria.

What if I don’t respond to the CP21E notice on time?

Failing to respond to the CP21E notice by the deadline can result in additional interest and penalties. The IRS may take enforcement actions such as wage garnishment or placing liens on your assets. It’s critical to act promptly to avoid these consequences.

Can I dispute the audit findings without new information?

Yes, even without new information, you can still file a formal appeal with the IRS if you disagree with the findings. The IRS provides a process for appealing their decisions, which is outlined in IRS Publication 5. It’s important to follow the deadlines and guidelines for the appeals process.

What happens if I’m owed a refund?

If the audit results in a refund, the CP21E notice will provide details on the amount and timeline. Generally, the IRS will issue your refund within two to three weeks. If you don’t receive your refund within this timeframe, contact the IRS for further guidance.

Can the IRS assist me with setting up a payment plan?

Yes, the IRS can help you set up a payment plan if you’re unable to pay the full amount owed. Contact the IRS using the number provided in the notice to discuss your options. You may also qualify for other relief programs, depending on your financial situation.
Need help understanding other IRS letters and notices? Visit our comprehensive guide to IRS Letters and Notices or search for the document you received in the table below.
IRS Letter or Notice Number
Notice Description
CP01The IRS verified your claim of identity theft and will monitor your account.
CP01HThe IRS received a tax return with a social security number that belongs to a dead person.
CP02HMoney is due on an amended return based on a grant received due to Hurricane Katrina, Rita, or Wilma.
CP03CYou received the First-Time Homebuyer Credit for a house you purchased.
CP04You may be eligible for tax deferment because either you or a spouse served in a combat zone, a qualified contingency operation, or a hazardous duty station during the tax year specified on your notice.
CP08You may be entitled to additional money due to the Additional Child Tax Credit.
CP10Your tax return changed due to a miscalculation, and the refund you wanted to apply to an estimated tax payment has changed.
CP10AYour tax return changed due to a miscalculation of the Earned Income Credit, and the refund you wanted to apply to an estimated tax payment has changed.
CP11You owe money because the IRS amended your return due to a miscalculation.
CP11AYour tax return changed due to a miscalculation of the Earned Income Credit, and the refund you wanted to apply to an estimated tax payment also changed.
CP11MYour tax return changed due to a miscalculation of the Making Work Pay and Government Retiree Credit, and the refund you wanted to apply to an estimated tax payment has changed.
CP12You are due a bigger refund because the IRS corrected one or more mistakes on your tax return.
CP12AThe IRS made changes to correct the Earned Income Credit (EIC) claimed on your tax return.
CP12E or CP12FThe IRS corrected a miscalculation on your return.
CP12MThe IRS made changes to the computation of the Making Work Pay and/or Government Retiree Credits on your return.
CP12RThe IRS made changes to the computation of the Rebate Recovery Credit on your return.
CP13The IRS made changes to your return due to a miscalculation. There is no refund or amount due. Your balance is zero.
CP13AThe IRS made changes to your return due to a miscalculation of the Earned Income Credit. There is no refund or amount due. Your balance is zero.
CP13MThe IRS made changes to your return due to a miscalculation of the Making Work Pay credit or the Government Retiree Credit. There is no refund or amount due. Your balance is zero.
CP13RThe IRS made changes to your return due to a miscalculation of the Recovery Rebate Credit. There is no refund or amount due. Your balance is zero.
CP14You owe money on unpaid taxes.
CP16The IRS made changes to your return due to a miscalculation. The refund you were due was applied to other tax debts.
CP21AYou owe money due to the changes you requested that the IRS make on your tax returns.
CP21BYou are due a refund due to the changes you requested that the IRS make on your tax returns. The money should arrive within 2 to 3 weeks.
CP21CThe IRS made the requested changes to your tax return. You will not receive a refund, and there is no tax due. Your balance is zero.
CP21EAs a result of your recent audit, the IRS made changes to your tax return, and you owe money as a result of those changes.
CP21IThe IRS made changes to your tax return relating to the Individual Retirement Arrangement (IRA) taxes. You owe money due to the changes.
CP22AThe IRS made the changes you requested, and you owe money as a result.
CP22EAs a result of your recent audit, the IRS changed your tax return, and you now owe money.
CP22IThe IRS made changes to your tax return relating to the Individual Retirement Arrangement (IRA) taxes. You owe money due to the changes.
CP23The IRS changed your return because there was a difference between the amount of estimated tax payments listed on your tax return and the amount actually posted to your account. You owe taxes due to these changes.
CP24The IRS changed your return because there was a difference between the amount of estimated tax payments listed on your tax return and the amount actually posted to your account. This resulted in an overpayment of estimated taxes.
CP24EThe IRS changed your return because there was a difference between the amount of estimated tax payments listed on your tax return and the amount actually posted to your account. This resulted in an overpayment of estimated taxes.
CP25The IRS changed your return because there was a difference between the amount of estimated tax payments listed on your tax return and the amount actually posted to your account. You are not due a refund, nor do you owe any money. Your balance is zero.
CP31You need to update your address because your refund check was returned to the IRS.
CP45The IRS was unable to apply your overpayment to your estimated tax as you requested.
CP49The IRS used all or part of your refund to pay a tax debt.
CP53Your refund check will be sent by mail because the IRS can’t provide your refund through direct deposit.
CP57The bank declined your payment, so the IRS was unable to draft funds from your bank account.
CP71A reminder of the amount you owe in tax, penalty, and interest.
CP71AA reminder of the amount you owe in tax, penalty, and interest.
CP71CA reminder of the amount you owe in tax, penalty, and interest.
CP71DA reminder of the amount you owe in tax, penalty, and interest.
CP88The IRS is holding your refund because you haven't filed one or more tax returns, and it believes you will owe tax.
CP90The IRS is notifying you of its intent to levy certain assets for unpaid taxes. You have the right to dispute the levy in a Collection Due Process hearing.
CP91The IRS will levy up to 15% of your social security benefits for unpaid taxes.
CP120The IRS needs documentation of your tax-exempt status.
CP120AYour organization’s tax-exempt status has been revoked because it failed to file a Form 990 series return for three consecutive years.
CP130You may no longer need to pay the Alternative Minimum Tax (AMT) because your tax return filing requirements changed.
CP152The IRS received your return.
CP153The IRS will send your refund by mail because your direct deposit did not go through.
CP161You have an unpaid balance due to the IRS.
CP166Your monthly payment to the IRS did not go through due to insufficient funds in your bank account.
CP178You may no longer owe excise tax because your tax return filing requirements changed.
CP231You need to update your address because your refund was returned to the IRS.
CP259You did not file the business tax return identified in the notice.
CP259AYou should have filed these forms but did not – Form 990/990-EZ, Return of Organization Exempt From Income Tax, or Form 990-N (e-Postcard).
CP259BThe IRS requires you to file these forms but did not – Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation.
CP259CThe IRS believes that you are a private foundation, but did not file the required Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation.
CP259DYou must file this form, but you did not – Form 990-T, Exempt Organization Business Income Tax Return.
CP259EYou should have filed this form, but you did not – Form 990-N (e-Postcard) or Form 990/990-EZ, Return of Organization Exempt From Income Tax.
CP259FThe IRS requires you to file this form but did not – Form 5227, Split-Interest Trust Information Return.
CP259GThe IRS requires you to file this form, but you didn’t – Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations.
CP259HAs a tax-exempt political organization, you must file this form, but you did not – Form 990/990-EZ, Return of Organization Exempt From Income Tax.
CP276AYou submitted your tax liability schedule incorrectly. The IRS typically charges a Federal Tax Deposit (FTD) penalty for this but did not this time.
CP276BThe IRS did not receive the correct amount of tax deposits. It normally charges a Federal Tax Deposit (FTD) penalty but did not this time.
CP297The IRS is notifying you of its intent to levy certain assets for unpaid taxes. You have the right to dispute the levy at a Collection Due Process hearing.
CP297AThe IRS has levied your assets for unpaid taxes. You have the right to dispute the levy at a Collection Due Process hearing.
CP298The IRS notifying you of its intent to levy up to 15% of your social security benefits for unpaid taxes.
CP501You have a balance due on one of your tax accounts.
CP503You have an unpaid balance on one of your accounts, and the IRS has not heard from you.
CP504You have an unpaid amount due on your account. If you do not pay immediately, the IRS will levy your state income tax refund to apply it to the amount you owe.
CP504BYou have an unpaid amount due on your account. If you do not pay immediately, the IRS will levy certain property or rights to property to apply it to the amount you owe.
CP521A reminder that you have an installment agreement payment due.
CP523You have defaulted on your payment agreement. Therefore the IRS is terminating the agreement and will levy your assets.
CP601Usted tiene un saldo pendiente de pago (dinero que le debe al IRS) en una de sus cuentas contributivas.
CP603No hemos recibido respuesta de parte de usted y todavía tiene un saldo sin pagar en una de sus cuentas contributivas.
CP604Usted tiene un saldo sin pagar en su cuenta. De no pagar esta cantidad inmediatemente, el IRS embargará cualquier reembolso de impuestos estatales al que tenga derecho y aplicarlo al pago de su deuda.
CP604BUsted tiene un saldo sin pagar en su cuenta. De no pagar esta cantidad inmediatemente, el IRS embargará ciertas propiedades o derechos de propiedad y lo aplicará al pago de su deuda.
CP621Este aviso es para notificarle que usted tiene un plan de pagos a plazos vencido. Por favor, envíe el pago inmediatamente.
CP623Este aviso es para informarle nuestra intención de cancelar su plan de pagos a plazos y confiscar (embargar) sus bienes. Usted incumplió en su acuerdo.
CP711Nosotros realizamos cambios a su planilla debido a que entendemos que hubo un cálculo erróneo. Como resultado de estos cambios, usted adeuda dinero por sus contribuciones.
CP721Hicimos el(los) cambio(s) que usted solicitó a su declaración de impuestos para el año tributario que aparece en su aviso. Como resultado de éste(estos) cambio(s) usted debe dinero en sus impuestos.
CP722Hicimos el(los) cambio(s) que usted solicitó a su declaración de impuestos para el año tributario que aparece en su aviso. Como resultado de éste(estos) cambio(s) usted debe dinero en sus impuestos.
CP771Usted recibió este aviso para recordarle sobre la cantidad que adeuda en contribuciones, multas e intereses.
CP772Usted recibió este aviso para recordarle sobre la cantidad que adeuda en contribuciones, multas e intereses.
CP773Usted recibió este aviso para recordarle sobre la cantidad que adeuda en contribuciones, multas e intereses.
CP774Usted recibió este aviso para recordarle sobre la cantidad que adeuda en contribuciones, multas e intereses.
CP959Usted no radicó su planilla de contribución de negocios identificada en este aviso.
CP2000The income or payment information on file doesn’t match your tax return. The discrepancy may result in an increase or decrease in your tax due.
CP3219AThe IRS has received information that is different from what you reported on your tax return. This may result in an increase or decrease in your tax.
CP3219NThe IRS didn’t receive your tax return, so it calculated your return based on the information received from employers, financial institutions, and others. If you want to challenge the proposed tax, you have 90 days from the date of this notice. If you are outside the country, you have 150 days.
Letter 0012CThe IRS needs additional information to process your tax return.
Letter 0484CThe IRS wants a completed
Letter 0525Updates you on proposed changes after an IRS examination. Any changes are explained and details the refund due or taxes owed.
Letter 531IRS Notice of Deficiency. The information the IRS received about you was different from what you reported on your return.
Letter 0668D(LP 68)The IRS released their levy.
Letter 0549CYour tax bill was paid.
Letter 0681CThe IRS accepted your payment proposal. However, this is not a formal Installment Agreement.
Letter 0757CYou did not adhere to the terms of your Installment Agreement.
Letter LT 11The IRS plans to seize your property or rights to property.
Letter 1058The IRS has not received your payment. It plans to seize your property or rights to property.
Letter 1615 (LT 18)You must respond to the IRS within 10 days of this notice regarding past due tax returns.
Letter 1737 (LT 27)Complete and sign Form 433F, Collection Information Statement.
Letter 1961CYour application for a Direct Debit Installment Agreement was declined. It explains why and what you need to do to qualify.
Letter 1962CYour application for a
Letter 2050 (LT 16)The IRS is trying to collect unpaid taxes from you from returns that have been filed or from returns that have not been filed.
Letter 2257CThe IRS is providing the payoff amount that you requested.
Letter 226-JAn IRS letter to large employers notifying them that they may be liable for an Employer Shared Responsibility Payment (ESRP).
Letter 2271CA request for an Installment Agreement has been approved. It explains the fees and how to qualify for a Low Income Fee Reduction. The letter may also request missing information.
Letter 2272CAn IRS letter explaining why your request to pay the balance due in installments was declined.
Letter 2273CA confirmation letter of your request to pay the balance due in installments. It contained the amount to pay, fees charged, and where to send payment. Instructions on how to apply for the Low Income Fee Reduction included.
Letter 2318CA response to a request to pay taxes due to payroll deductions. It also explains the fees that are charged.
Letter 2357CThe IRS is admitting that it did not send you the balance due notices that it should have.
Letter 2603CThe IRS accepted your installment agreement. The IRS will file a Notice of Federal Tax Lien on your personal property.
Letter 2604CThe IRS has accepted your request for installment payments. This IRS letter provides the monthly payment, the address where to send it, and the fees charged. The letter also provides instructions on how to apply for the Low Income Fee Reduction.
Letter 2761CThe IRS is requesting your combat zone service dates to ensure that it provides you with the special provisions and protection of the combat zone deferment. Copies of military orders or other documentation to support your time served may be requested. Civilians working in support of the Armed Forces may be required to provide a Letter of Authorization or a letter from their employer.
Letter 2789CAn annual reminder notice, as required by law, of the balance due to the IRS. It explains that penalties and interest continue to accrue until the balance is fully paid.
Letter 2840CConfirms your Installment Agreement request and includes the payment amount and due date. This IRS letter explains the fees charged for paying monthly and explains how to apply for the Low Income Fee Reduction (if you qualify).
Letter 3030CProvides an explanation of the tax, penalty, and interest still due on your account.
Letter 3127CA confirmation of your request to make a change to your Installment Agreement. This IRS letter explains the fees for the change. Changes can be to the payment amount or due date, or it can include additional liabilities.
Letter 3174A reminder of taxes due after the IRS has sent a Notice of Intent to Levy.
Letter 3217CThe IRS has accepted your request to pay the balance in installments. This IRS letter provides your payment amount, the due date, and fees charged. The letter also provides instructions on applying for the Low Income Fee Reduction (if you qualify).
Letter 3228 (LT 39)A request to pay the balance due within 10 days using the envelope provided.
Letter 3500The IRS has received your documents, and it needs additional time to review them.
Letter 3572Your Federal Income Tax Return has been selected for examination. The IRS auditor requests that you call to schedule an audit appointment.
Letter 4883CThe IRS received your federal income tax return but needs more information to verify your identity in order to process your tax return accurately.
Letter 4903 (LT 26)You must file your tax returns immediately. The IRS has previously contacted you, but it did not receive a response.
Letter LP 47The IRS is trying to locate the person identified in the letter and is requesting that you provide their new address.
Letter LP 59The IRS has not received a response to the notice of levy it previously sent.
Audit Letter 2205The IRS manages audits either by mail or through an in-person interview to review your records. The interview may be at an IRS office (office audit) or the taxpayer’s home, place of business, or accountant’s office (field audit).
Letter 915You recently underwent an audit, and the IRS informs you that you now owe taxes.

Key takeaways

  • The CP21E notice informs taxpayers of changes to their tax return after an IRS audit.
  • The notice may result in a refund, a balance owed, or no change in your account.
  • If you owe money, you must pay by the deadline or set up a payment plan.
  • If you disagree with the changes, you can request an audit reconsideration, file an appeal, or submit an amended tax return.
  • Failing to address the CP21E notice may result in penalties and interest on unpaid balances.

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