What CP 238 is
An educational notice to a taxpayer in its first period of deposit liability whose deposit was late or was sent to the IRS instead of to a depositary, telling it the penalty was waived this once and how to deposit through EFTPS (IRM 20.1.4.26.3(9)). The systemic version is stated for Forms 941, 943 and 944; a first-year Form 945 filer should expect to ask for the first-quarter waiver rather than receive it.
Where this sits: these notices come from the Form 945 side of the house, the return on which backup withholding is reported and deposited. The Form 945 page covers the account mechanics behind them.
The deadline
No response required.
What to do
Enroll in EFTPS if you have not, and set the deposit calendar for your schedule. The waiver is once; the same failure the next period is penalized. If you are a Form 945 filer with a first-year deposit penalty and no CP 238, request the TBOR2 first-quarter waiver in writing (IRM 20.1.4.26.3(8)).
The first-period waiver
Employment and withholding tax deposits run on rules that are not obvious to a new filer: deposits must go through EFTPS rather than with the return, the schedule depends on a lookback period the new filer does not yet have, and the first deposit is often due before the first return is. The IRS's policy is to waive the failure-to-deposit penalty for a taxpayer's first period of deposit liability when the deposit was late or was sent to the IRS directly instead of through a depositary, and to use the notice to explain how deposits work. CP 238 is that notice for the Forms 941, 943 and 944. It is not a bill and needs no reply.
A new Form 945 filer is in the same position but the systemic notice is written for the payroll returns, so the first-year 945 depositor who is penalized should not wait for a CP 238; the waiver has to be requested. A one-paragraph letter citing the first-period deposit waiver, with the penalty notice attached, is enough.
Setting up the account properly
Enroll the business in EFTPS at eftps.gov; the enrollment takes about a week because a PIN is mailed, so it cannot be done the day a deposit is due. A new Form 945 filer with no lookback history is a monthly depositor by default: each month's backup withholding is due by the 15th of the following month, unless the accumulated liability reaches $100,000 on any day, which makes that amount due the next business day and converts the account to semiweekly for the rest of the year and the next. If the year's total liability is under $2,500, it may be paid with the return on January 31 instead of deposited. Set those dates on the compliance calendar when the first payment with backup withholding is made, since the deposit is due whether or not any 1099 has yet been filed. The Form 945 page covers the schedule, and the deposit penalty calculator shows what the next late deposit would cost once the waiver is used.
Questions about CP 238
Who receives CP 238?
Payer. An educational notice to a taxpayer in its first period of deposit liability whose deposit was late or was sent to the IRS instead of to a depositary, telling it the penalty was waived this once and how to deposit…
What is the deadline on CP 238?
No response required.
What should I do when CP 238 arrives?
Enroll in EFTPS if you have not, and set the deposit calendar for your schedule. The waiver is once; the same failure the next period is penalized. If you are a Form 945 filer with a first-year deposit penalty and no CP 238, request the TBOR2 first-quarter waiver in writing (IRM 20.1.4.26.3(8)).
Is CP 238 about my own income tax?
No. This decoder covers information reporting and withholding: the notices a payer, filer or payee sees because of Forms 1099, W-2, 945 and the TINs on them. Individual income-tax notices follow a different track.
Have a different notice? The IRS notice decoder lists all 77 in the order they tend to arrive.