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CP235 notice: what it means and what to do

Got an IRS CP235 notice? Here is what it means, your deadline, what to check before you answer, and how to reply. Check your own letter free: it stays on your phone.

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What the IRS says this notice is about

The prior deposit schedule was used. We sent you a notice explaining that your deposit schedule changed, but you didn’t make deposits according to the new schedule and therefore you were subject to a Failure to Deposit penalty. Fortunately, we’re able to waive the deposit penalty because your schedule recently changed.

What you need to do

Review your deposit requirements.
If your total tax in the lookback period was $50,000 or less, you are a monthly depositor. If your total tax in the lookback period was over $50,000, you are a semi-weekly depositor.
The lookback period is: for annual returns, the second previous year;
for Form 941 the four quarters ending with the second quarter of the previous year. If you used Form 944 in either of the two prior years, the lookback period is the second previous year.
Monthly depositors must deposit by the 15th of the following month. If the 15th is a weekend or holiday, the deposit is due the next business day.
Semiweekly depositors with payroll on Wednesday, Thursday, or Friday must deposit on the following Wednesday. Those with payroll on Saturday, Sunday, Monday, or Tuesday must deposit on the following Friday.
To avoid future penalties, use the correct deposit schedule immediately.

Your deadline

Answer by the date printed on your notice. If there is no date, answer as soon as you can, and call the number on the notice if you need more time.

What to check before you answer

You may be able to remove the penalties

If you had no penalties in the 3 tax years before, filed all required returns, and paid or arranged to pay the tax, the IRS First-Time Abatement policy can remove failure-to-file and failure-to-pay penalties. You can ask in writing or by phone.

Cannot pay it all now? Ask for a payment plan

You can apply for a payment plan on irs.gov. Interest keeps running until the balance is paid, so pay what you can now.

Is this letter really from the IRS?

The IRS writes first by mail. A real letter shows a notice or letter number, your name and part of your tax ID number. The IRS does not ask for payment by gift card, crypto or wire transfer. If in doubt, sign in to your IRS online account, where many notices are listed.

Common questions

I did not receive a notice showing the change in deposit schedule.

You are required to determine the correct deposit schedule, even if you don’t receive a notice. We send a notice in November if your deposit requirement changed, based on the original returns from the lookback period. We don't consider amended returns. If a return is not filed when we send the notices, we won’t be able to determine the correct deposit schedule.

Do I have to deposit electronically?

You must pay all deposits electronically unless your tax liability is less than $2,500. If your tax is less than $2,500, you can pay with your tax return. Also, for Form 941, you can pay with your tax return if the tax for the prior quarter is less than $2,500, and you did not incur a $100,000 liability in the current quarter.

What if my accumulated tax liability reaches $100,000?

You must deposit the next business day. Once your accumulated tax liability reaches $100,000 for any month, you immediately become a semi-weekly depositor for the rest of the current year and the next year.

Helpful information

Publication 15 (Circular E), Employer’s Tax Guide (For Forms 941, 944, 945) PDF
Publication 51 (Circular A), Agricultural Employer’s Tax Guide (For Form 943) PDF
Form 941, Employer's Quarterly Federal Tax Return PDF and Instructions PDF
Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees PDF and Instructions PDF
Form 944, Employer’s ANNUAL Federal Tax Return PDF and Instructions PDF
Form 945, Annual Return of Withheld Federal Income Tax PDF and Instructions PDF

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Related notices

Source

IRS: Understanding your CP235 notice