IRS update on erroneous 2024 CP161 notices

Earlier this year, NATP confirmed that the IRS erroneously issued CP161 Notices, Requests for Payment or Notice of Unpaid Balance, regarding the underpayment of estimated tax for certain 2024 trusts that had filed a Form 1041, U.S. Income Tax Return for Estates and Trusts.

For many practitioners, the arrival of a CP161 notice sparks alarm, since it often signals a tax liability or penalty that needs immediate attention. In this case, however, the IRS acknowledged the notices resulted from a programming error and should not have been sent to the affected trusts.

IRS programming error triggers incorrect CP161 balance due statements

The problem stems from a programming change the IRS rolled out in early 2025. That change triggered automated penalty assessments under §6654, which governs underpayment of estimated tax. The notices were sent even when estimated payments were not required.

The affected cases fell into two categories:

• Trusts electing estate treatment. Trusts that chose to be treated as estates with tax years ending less than two years from the decedent’s date of death.
• Trusts with no prior liability. Trusts that reported no tax liability on a previous year return and therefore had no obligation to make estimated payments.

Despite these exemptions, the notices incorrectly claimed balances due, citing failure to make estimated payments.

IRS confirms error and outlines steps to correct CP161 issue

After NATP flagged the issue, the IRS confirmed the problem and assured that steps are underway to correct the issue. According to the agency:

• The business operating division and IT teams are collaborating to resolve the error.
• Impacted accounts will be automatically adjusted within approximately one month from notice date.
• An internal alert has been posted, allowing IRS assistors to quickly recognize the issue and provide help when taxpayers or their representatives call.

This means that most taxpayers should not take any action. If the adjustments process runs as planned, accounts will be updated and penalties will be reversed automatically.

Programming update prevents new CP161 balance due errors

While the original programming error created a significant burden, the IRS reports that a program fix was implemented to prevent future notices from being mistakenly issued. Returns filed after July 17, 2025, should no longer trigger the erroneous assessments for estimated tax penalties.

This fix ensures that newly filed 2024 Form 1041 returns will be processed correctly, without the risk of an improper CP161 notice being generated.

IRS has not yet issued formal guidance on CP161 notices

Although the immediate problem was addressed, the IRS has not published formal guidance for practitioners and taxpayers. NATP has learned that guidance is in approval status, with issuance still to be determined.

In the meantime, the IRS’s Office of Servicewide Penalties is working closely together with IRS executives to identify a long-term solution limiting burdens on taxpayers and the agency. This effort underscores the IRS’s recognition of the disruption that erroneous notices cause, and the importance of a systemwide remedy.

What to do if you or your clients receive an unwarranted CP161 notice

Here’s what you need to know and share with clients if they receive one of these CP161 notices:

1. No immediate action required. The IRS has committed to automatically reversing erroneous penalty assessments for affected trusts.
2. Call if needed. Tax pros and taxpayers may still call the IRS to request an abatement if they receive a notice and prefer to have it addressed directly. Connect with your local IRS stakeholder liaison for additional assistance.
3. Monitor for resolution. Additional follow-up may be necessary if the penalty has not been removed within the expected timeframe. In those cases, practitioners should be prepared to provide supporting details demonstrating why estimated payments were not required.
4. Document communications. Keep records of notices received, calls made and any IRS correspondence to help safeguard your client’s file.

Erroneous notices create confusion, unnecessary administrative work and potential anxiety for both taxpayers and tax professionals. For fiduciaries handling trusts, CP161 notices can be especially concerning because they suggest missed obligations that don’t exist.

Until formal guidance is issued, NATP recommends monitoring any notices that arrive and helping clients understand that these penalties are not valid in the two scenarios described (trusts electing estate treatment and trusts with no prior liability).

How NATP is monitoring the CP161 issue for members

Tax professionals can assure clients that the erroneous CP161 notices are a recognized IRS error and not a reflection of missed obligations. While no action should generally be required, it’s wise to track notices, monitor accounts and be ready to intervene if penalties are not reversed promptly.

As NATP continues to monitor developments, we will share updates with our members when the IRS publishes formal guidance. Tax pros can help ease client concerns by explaining the situation, confirming that relief is underway and encouraging patience as the IRS corrects the error.