Watch Out for IRS Notices Sent in Error

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IRS Sending Erroneous CP161 Notices for 2024 Form 1041 Filings

Programming Issue Triggers Incorrect CP161 Notices for Some 1041 Trust Returns

The IRS is erroneously issuing CP161 balance due notices for certain 2024 Form 1041 trust returns. These notices incorrectly assess estimated tax penalties in cases where no payments were required—such as trusts that elected to be treated as estates or those with no prior-year tax liability.

This issue stems from a recent programming error. According to the National Association of Tax Professionals (NATP), the IRS has acknowledged the problem and is working to automatically correct affected accounts within approximately one month. No action is needed at this time unless the penalties are not reversed in that timeframe. If you’ve received one of these notices, do not make a payment.

Thanks to NATP for Bringing to Our Attention

Through member reports and professional discussions, NATP has been alerted that the IRS is erroneously issuing CP161 notices (balance due for underpayment of estimated tax) for certain 2024 Form 1041 trust returns. The affected cases can involve:

  • Trusts that elected to be treated as estates with tax years ending less than two years from the date of death, or
  • Trusts that reported no tax liability on a prior year return and therefore were not required to make estimated payments.

Despite estimated payments not being required in these scenarios, taxpayers received notices asserting penalties under IRC §6654. The IRS confirmed that a programming change in early 2025 caused the erroneous penalty assessments. They also maintain that the business operating division and IT are currently working to correct the issue. They believe impacted accounts will be automatically adjusted within approximately one month Additionally, the IRS has posted an internal alert, enabling assistors to identify the issue and help with corrections if taxpayers call.

Regarding Form 1041

The fiduciary of a domestic decedent’s estate, trust, or bankruptcy estate files Form 1041 to report:

  • The income, deductions, gains, losses, etc. of the estate or trust.
  • The income that is either accumulated or held for future distribution or distributed currently to the beneficiaries.
  • Any income tax liability of the estate or trust.
  • Employment taxes on wages paid to household employees.