A recent Executive Order 14247, “Modernizing Payments To and From America’s Bank Account” has introduced updates to available direct deposit options. Under these changes, individual taxpayers may now be able to provide a new or updated bank account for receiving their tax refund via direct deposit, provided certain conditions are met.
If you or your clients have recently received an IRS CP53E notice, you’re not alone. We’re seeing an increasing number of these notices, and they can be confusing at first glance. Even more importantly, they may not mean what you think.
What Is Happening?
The IRS appears to be in the process of recalculating underpayment penalties for certain taxpayers. However, in many cases, their system is issuing refunds before those recalculations are fully completed.
As a result, taxpayers are experiencing the following sequence:
- A CP53E notice stating that a refund cannot be direct deposited
- Followed shortly after by a paper check, often tied to an underpayment penalty
While receiving a check from the IRS might seem like good news, in this situation, it’s often premature.
What Should You Do?
If you receive a CP53E notice and a corresponding check, the best course of action is to pause. Acting too quickly can create additional complications.
Here’s what we recommend:
- Do not take immediate action
- Do not cash the paper check
- Wait for the official underpayment penalty notice from the IRS
Why Waiting Matters
The check you receive may not reflect the IRS’s final determination. Once their system completes the recalculation process, you will typically receive a formal notice outlining the actual underpayment penalty.
At that point, the appropriate next step is to:
- Return the check along with the notice
- Request that any additional interest or penalties be reversed
Handling it this way helps ensure that your account is corrected accurately and minimizes the risk of further notices or adjustments.
Beware of Scams
Situations like this can unfortunately create opportunities for scammers. Be cautious of unsolicited phone calls, emails, physical mail, or text messages claiming to be from the IRS, especially those asking for personal information or instructing you to deposit or return funds in a specific way.
Real CP53E notices typically give taxpayers 30 days to update banking information through their IRS Online Account. If no action is taken within that window, the IRS generally issues a paper check after about six weeks. IRS employees cannot update bank account information by phone or in person. Banking changes must be made through the taxpayer’s IRS Online Account. Anyone calling, texting, or emailing to “help” you update this information, is not the IRS.
Keep in mind:
- The IRS does not initiate contact via phone, email, or text to request sensitive information
- Official IRS communications are sent by mail, however, still be cautious as scammers will impersonate IRS notices
- You should never be asked to return funds via gift cards, wire transfers, or third-party payment apps
If something feels off, it’s best to verify directly with your tax professional before taking any action or verify by logging into your Online IRS Account: IRS website
A Temporary Workaround
While this process is understandably frustrating, it appears to be the IRS’s current workaround as they reconcile timing issues within their systems. Until those systems are fully aligned, situations like this may continue to arise.
When to Seek Guidance
If you’re unsure how this applies to your specific situation, or if your client has already taken action, it’s worth consulting with a tax professional before proceeding further. A careful, informed approach can help avoid unnecessary penalties or administrative back-and-forth.
Written By: Tori Trerise