AICPA recommends improvements to CP53E notice process

The IRS should provide additional guidance on CP53E notices, the AICPA said, after the agency sent the notices to 3 million taxpayers, seeking bank account information and prompting widespread concern.

“Implementing our recommendations and increasing public outreach will help to reduce confusion and protect taxpayers who are exempt from the electronic fund requirement,” the AICPA said in a June 9 letter to Ken Corbin, the IRS chief of Taxpayer Services.

The IRS, in response to Executive Order 14247, created the CP53E notice before the most recent filing season as part of the transition from paper checks to electronic payments and deposits.

The notice asks taxpayers to add or update bank account information through their IRS online accounts to enable direct deposit for refunds. It provides 30 days to respond. If the taxpayers take no action, the IRS issues a paper check after six weeks.

However, the notices were also sent to taxpayers who were not due a refund, including those who applied overpayments to the following year, reported no balance due or a balance due, or had already provided valid direct deposit information, the AICPA said.

“In the middle of the filing season, taxpayers and practitioners were spending significant time, expense, and effort to determine the cause of these notices and whether such notices were erroneous or fraudulent,” the AICPA said.

The IRS did provide further guidance, but it arrived after filing season ended, the AICPA said.

The AICPA recommended in the letter that the IRS should provide additional guidance clarifying the reasons that a CP53E notice would be issued, indicating what actions are required in each circumstance, and explaining the agency’s limitations on the use of direct deposit information. Those changes would help taxpayers and practitioners determine whether a CP53E notice is accurate, erroneous, or fraudulent, the AICPA said.

Because extended 2025 calendar-year returns generally will be filed by Oct. 15, 2026, “the IRS has the opportunity to review and analyze taxpayer and practitioner feedback and to modify IRS systems to remove unnecessary events that may trigger CP53E notices before that filing due date,” the letter said.

The AICPA also made several recommendations regarding excepted taxpayers, saying the IRS should:

• Allow taxpayers to self-identify as excepted taxpayers on income tax returns.

• Issue regulations or other guidance defining all categories of excepted taxpayers for purposes of receiving paper refund checks.

• Implement policies that prevent the issuance of CP53E notices to taxpayers that have identified as excepted taxpayers in previous years.

It’s likely that excepted taxpayers in the 2026 filing season will remain so in the 2027 filing season, the letter said. “The IRS can use this data to bypass the refund hold and the issuance of CP53E notices for excepted taxpayers during the 2027 filing season,” the AICPA said. “This would allow the IRS to allocate resources to other critical tax issues and deliver timely refunds to taxpayers.”

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.