Introduction: What an IRS CP23 Notice Means for Americans Paying From Britain
An IRS CP23 notice tells you that the estimated tax payments claimed on your return do not match the payments the IRS has posted to your account. As a result, the agency has rewritten your return and now says you owe the difference. For an American in London who sent six-figure instalments by international wire, that difference can be enormous. Moreover, it often arrives months after the money left a British bank.
The letter looks like a bill. However, it is usually a bookkeeping dispute about where your money went, not about how much tax you owed. That distinction changes everything about how you respond. At TaxYork, we reconcile these notices for fund partners, company owners and senior executives who pay the IRS from sterling accounts. In our experience, most of the balance on a cross-border IRS CP23 notice turns out to be money the Treasury already holds.
Why an IRS CP23 Notice Reaches London Addresses So Often
Americans living in Britain face payment friction that domestic filers never meet. Direct Pay and the Electronic Federal Tax Payment System both expect a US bank account. Consequently, many expats pay by international wire, by card through a payment processor, or by applying last year's overpayment forward. Each route has its own way of failing quietly.
Furthermore, the post takes longer. An IRS CP23 notice therefore often reaches you only weeks before the stated due date. Meanwhile, interest keeps running. The current IRS rate for individual underpayments is 7%, compounded daily, as the IRS confirmed for the fourth quarter of 2026. On a balance of $70,000, that costs roughly $13 a day while you wait.
What the Notice Changes and What It Does Not
An IRS CP23 notice changes the payments side of your return, not the tax side. Your income, deductions, foreign tax credit and total tax normally stay exactly as you filed them. Instead, the IRS reduces the line showing estimated payments, credits applied from another year and payments sent with an extension. Therefore, the new balance equals the gap between your figure and the agency's figure, plus penalties and interest.
That point matters for your US tax return preparation in later years too. Because the tax itself has not changed, your foreign tax credit carryovers and your UK reconciliation remain valid. However, you still need to correct your own copy of the return, as the IRS guidance on understanding your CP23 notice instructs.
How the IRS Builds the Payment Figure on Your IRS CP23 Notice
To dispute an IRS CP23 notice properly, you first need to understand what the agency counted. The IRS does not look at your bank statements. Instead, it adds up the transactions posted to one account module. Your Social Security number, the form type and the tax year identify that module.
Estimated Payments, Credit Elect and Extension Payments
Three kinds of credit feed the figure. First come the quarterly estimated payments themselves. For 2026, they fall due on 15 April, 15 June and 15 September 2026, and 15 January 2027, according to IRS Publication 505. Second, there is any overpayment from the previous year that you chose to credit forward, known as a credit elect. Third, the IRS includes any payment you sent with an extension request.
Each of those credits can go astray independently, and any one of them can trigger an IRS CP23 notice. Moreover, a credit elect depends entirely on the previous year's return processing as filed. Publication 505 explains that a timely credited overpayment counts as paid on 15 April. Consequently, if the IRS reduced last year's refund before transferring it, a smaller credit arrives. The shortfall then surfaces as a CP23 the following year.
Reading Your Account Transcript: The Codes That Matter
Your account transcript shows the payments exactly as the IRS posted them. You can view it through the IRS online account or request it using Get Transcript. For Americans in Britain, identity verification can be awkward, so allow time before the notice deadline.
Several transaction codes deserve particular attention. Transaction code 430 records an estimated tax payment. In contrast, code 670 records a subsequent payment, which is how a wire coded as a balance-due payment appears. Code 716 shows a credit elect arriving from the prior year, while code 836 on the earlier year shows that credit leaving. Additionally, code 460 marks an extension of time to file. When your own ledger shows a payment that appears on the wrong year's transcript as code 670, you have usually found your missing money.
Common Causes of an IRS CP23 Notice for Americans in Britain
We see the same causes of an IRS CP23 notice repeatedly in cross-border casework. Notably, only one of them involves a genuine underpayment. The others are coding, timing or identity problems that the IRS can fix once you show it where the money sits.
Wires Coded to the Wrong Tax Type or Period
An international wire requires the IRS Same-Day Taxpayer Payment Worksheet, completed with a five-digit tax type code and a tax period. The IRS publishes those foreign electronic payment tax type codes for every form. For Form 1040, code 10406 means an estimated payment, while 10407 means a subsequent payment against a return or notice.
A private bank relationship manager filling in the worksheet often reaches for the wrong code or the wrong year. For example, a June instalment for the current year frequently lands on the previous year as a subsequent payment. As a result, the prior year shows an unexplained credit while the current year shows a hole, and an IRS CP23 notice follows. We cover the wire mechanics in detail in our guide to paying the IRS from a UK bank account.
A Prior-Year Overpayment That Shrank Before It Moved
Credit elect causes some of the largest notices we handle. You file a return showing a $50,000 overpayment and direct all of it to next year's estimates. However, the IRS may adjust that earlier return during processing, perhaps by trimming a foreign tax credit carryover. In that case, only the reduced amount transfers.
Many clients never see the earlier change. The letter explaining it went to an old address, or it arrived while they travelled. Consequently, the first sign of trouble is an IRS CP23 notice for the following year. Publication 505 adds a further trap. Once you elect to credit an overpayment forward, you cannot have it refunded or used in any other way until you file the next return.
Joint Payments and a British Spouse
Joint estimated payments post to the primary taxpayer's Social Security number. Publication 505 instructs joint filers to enter names and numbers on the voucher in the same order they will appear on the return. Therefore, if you reverse the order on the return, the payments may appear to be missing. The result is an IRS CP23 notice for money the IRS already holds.
Mixed-nationality couples meet a stricter rule. Publication 505 states that spouses cannot make joint estimated payments where either is a nonresident alien, unless that spouse has elected resident treatment. Many Americans married to British nationals file as married filing separately. Accordingly, payments sent jointly, or under a spouse's details, can sit outside the account that the return claims. The IRS guidance on nonresident spouses explains the election that changes this position.
Bank Charges, Currency and Simple Typing Errors
Correspondent banks often deduct a fee from an international wire before it reaches the Treasury. Similarly, a wire sent in sterling converts at the receiving bank's rate on arrival. Either way, the amount posted can fall short of the dollar figure on your return by a few pounds or by several hundred dollars.
The IRS does not round these differences away. Instead, a $35 shortfall generates an IRS CP23 notice, penalty and interest exactly as a large one would. Notably, this is the one cause where the notice is technically correct, even though you meant to pay in full. We therefore instruct clients to send slightly more than the exact instalment. They also keep the bank's confirmation showing the value date and references.
Finally, the most common domestic cause also catches expats. The Taxpayer Advocate Service page on CP23 identifies an incorrect entry on the estimated tax line as the leading trigger. Sometimes a preparer carries forward last year's figure by mistake. Occasionally an instalment was planned but never actually sent. In those situations, the notice is right, and the only question is how quickly you pay.
Disagreeing With an IRS CP23 Notice: Payment Trace Versus Reversal
Most published guides on the IRS CP23 notice tell you to contact the IRS within 60 days and leave it there. However, the sample notice the IRS publishes contains two quite different remedies, and confusing them costs time.
The 60-Day Reversal Right and Where It Applies
The 60-day paragraph on an IRS CP23 notice reflects the math error rules in section 6213 of the Internal Revenue Code. If the IRS also changed your tax, perhaps by disallowing a credit, you can request a written reversal within 60 days without giving reasons. After that window closes, you lose the right to challenge the change in the Tax Court before paying.
Payment credits work differently. Under section 6211, estimated payments are ignored when the IRS computes a deficiency. Consequently, a dispute about missing payments is not a tax disagreement at all. It is a question of fact about where money landed, and you resolve it by tracing the payment. Nevertheless, you should still reply inside 60 days, because the notice warns that the IRS assumes you agree if it hears nothing.
Running a Payment Trace From Abroad
A payment trace asks the IRS to find a specific remittance and move it to the correct module. You need the bank's wire confirmation showing the amount, the value date and the references sent, or the processor's confirmation for a card payment. Additionally, enclose a copy of the IRS CP23 notice with a short covering letter. Identify each disputed payment by date and amount, which speeds things up considerably.
From Britain, the international taxpayer line on +1 267-941-1000 handles account queries, although waiting times can be long. Alternatively, a written response to the address on the notice creates a clear record. Where the deadline is tight, we authorise ourselves on Form 2848 and call the practitioner line instead. That usually resolves a traced wire within one conversation.
Penalties and Interest Once the Payment Is Found
Once the IRS transfers a misapplied payment, it carries its original receipt date. Therefore, the failure-to-pay penalty under section 6651 and the interest on that portion fall away automatically. The IRS states this directly in its CP23 guidance.
Penalties on any genuine shortfall remain. The failure-to-pay penalty runs at 0.5% for each month or part month, and interest cannot be abated for reasonable cause. However, first-time relief may remove the penalty itself, as the IRS penalty relief page explains. Furthermore, an underpayment of estimated tax penalty under section 6654 can follow if the corrected instalments still fell short. The safe harbour is 110% of last year's tax once your adjusted gross income exceeded $150,000.
Case Study: A London Fund Partner and a $72,035 IRS CP23 Notice
The following illustration combines facts we commonly see. All figures are illustrative, and the client's name has been changed.
What the Notice Said
Daniel is a US citizen and partner at a London investment firm. His 2025 Form 1040 claimed $215,000 of estimated payments. Those comprised a $40,000 credit elect from 2024 and a $60,000 wire in June 2025. A $60,000 card payment followed in September 2025, then a $55,000 wire in January 2026. He filed in June 2026 and expected no balance.
Instead, an IRS CP23 notice dated 2 November 2026 reached his Kensington flat. The IRS had posted only $142,965 of payments. Consequently, the notice demanded $72,035 of tax, a failure-to-pay penalty of $2,521 for seven months and interest of $2,831 from 15 April. The total came to $77,387, due within three weeks.
Reconciling the Four Sources
We pulled transcripts for 2024 and 2025 and compared them with his bank records. The September card payment and the January wire had posted correctly, although the January wire arrived $35 short after a correspondent bank fee. Meanwhile, the June wire appeared on the 2024 transcript as code 670, because the worksheet showed tax type 10407 and period 2024.
The credit elect told a different story. During processing of his 2024 return, the IRS had reduced a foreign tax credit carryover, cutting the overpayment by $12,000. Accordingly, only $28,000 transferred as code 716. A notice explaining that change had gone to his previous address in 2025.
The Outcome
We filed a written response with the wire confirmation and requested a transfer of the $60,000 from 2024 to 2025. The IRS moved it with its original June 2025 date. Therefore, the penalty and interest on that portion disappeared entirely.
The genuine shortfall was $12,035, comprising the reduced credit elect and the $35 wire residue. With proportionate penalty of $421 and interest of $473, Daniel paid $12,929 rather than $77,387. Additionally, we reviewed the 2024 credit adjustment. The window to challenge it had closed, so we addressed it through a claim within the refund time limits instead. Paying the notice in full on receipt would have tied up $64,458 of his money for months.
A Reconciliation Process Before You Pay or Call
We follow the same five-step process on every cross-border IRS CP23 notice. You can apply it yourself, and it usually reveals the answer within an afternoon.
Steps One to Three: Build Your Own Ledger
Step one is to list every payment you intended for the tax year, with date, amount, method and the reference you used. Step two is to download the account transcripts for that year and the year before. Misapplied payments almost always land next door. Step three is to match each line of your ledger against a posted transaction code, noting any amount that differs by even a few dollars.
Equally, check the prior year for code 836 and compare it with the overpayment you elected to carry forward. If the two figures differ, look for an adjustment notice on that earlier year. In particular, check whether the IRS changed a foreign tax credit, because those adjustments drive most shrinking credit elects among our clients.
Steps Four and Five: Decide, Then Respond in Writing
Step four is to split the balance into three parts. These are money the IRS holds in the wrong place, money that never arrived, and genuine tax changes. Step five is to respond within 60 days, paying the genuine shortfall promptly and tracing the rest in writing. Where the notice also changed your tax, request the reversal in the same letter.
Paying the undisputed part immediately limits further interest. Similarly, if you cannot settle in full, an instalment agreement reduces the failure-to-pay rate to 0.25% per month. However, never send an amended return in response unless the return itself was wrong. A Form 1040-X only confuses a payment dispute. If you appoint an adviser, membership of the ICAEW Tax Faculty or the Chartered Institute of Taxation shows UK technical training. However, confirm US credentials too before anyone calls the IRS for you.
Preventing the Next IRS CP23 Notice
Preventing an IRS CP23 notice costs far less than correspondence across the Atlantic. Above all, it depends on one person owning the payment record for every tax year.
Payment Discipline for Large Estimates
Give your bank written wire instructions, including the tax type code 10406 and the correct quarter and year. Never let staff complete the worksheet from memory. Furthermore, add a modest buffer to cover correspondent bank fees. After six weeks, check your online account to confirm the payment posted to the right year, as the IRS itself recommends.
Card payments through an approved processor post reliably, although the processing fee on a six-figure instalment can be significant. Our guide to estimated taxes for Americans abroad explains how to size each instalment around bonus income. Similarly, Investopedia's overview of estimated tax covers the US basics. For comparison, HMRC's own payments on account follow a different calendar, so keep the two schedules separate in your records.
Credit Elect Choices When Your Position Is Moving
Crediting an overpayment forward is convenient, but it ties next year's estimates to this year's processing. Your return may contain a contested position, such as a large foreign tax credit carryover or a treaty claim. If so, consider taking the refund and paying estimates separately. Consequently, any adjustment to the earlier year cannot ripple into a notice for the next one.
Address changes deserve equal care. File Form 8822 whenever you move, because a missed adjustment letter is often the hidden first step. Finally, if you have missed US tax returns in earlier years, our IRS Streamlined Filing service brings those years up to date before payment problems compound.
How TaxYork Can Help
We prepare US and UK returns together for high-net-worth Americans in Britain, so the payment record and the tax position sit in one place. When an IRS CP23 notice arrives, we pull the transcripts under authorisation, reconcile every remittance, and respond in writing within the deadline. Moreover, we trace misapplied wires through the practitioner line, which avoids hours on international hold.
Our work extends beyond the IRS CP23 notice itself. We review whether a credit elect or foreign tax credit adjustment on an earlier year also needs challenging. Additionally, we keep your FBAR and FATCA reporting aligned with the accounts used to pay the IRS. Any UK account that funds your US payments still belongs on the FinCEN foreign bank account report once your balances pass $10,000 in aggregate. Where UK tax drives the US position, our tax treaty optimisation work keeps the foreign tax credit robust. Consequently, the IRS has less reason to adjust it.
Conclusion: Find the Money Before You Send More
An IRS CP23 notice rarely means you underpaid your tax. More often, it means the IRS cannot match your payments to the right year, the right person or the right amount. Therefore, the correct first response is a reconciliation, not a cheque.
Download both years' transcripts, decode the transaction codes, and separate misapplied money from genuine shortfalls. Then answer the IRS CP23 notice in writing within 60 days. In our experience, that discipline routinely turns a five-figure demand into a modest balance. Penalties and interest then disappear on everything the Treasury already held.
Contact Us
If an IRS CP23 notice has reached you in Britain, do not pay it in full until someone has checked the transcripts. Book a consultation with our US-UK team, email hello@taxyork.com or call 020 3488 8606. We will reconcile your payments, prepare the written response and recover misapplied money before the deadline passes.
Disclaimer
This article provides general information for educational purposes only and does not constitute tax, legal or financial advice. The case study is illustrative and does not describe a real client. IRS procedures, interest rates and transaction codes can change, and the treatment of your account depends on its specific facts. You should obtain advice from a qualified US-UK tax professional before acting on any notice.