Template from tincompliance.com. Letter 98-C (SSA-CAWR, penalty side) and Letter 99-C (IRS-CAWR, tax side) are the opening letters of the Combined Annual Wage Reporting program, which compares the wages and withholding on your Forms 941, 943, 944, 945 or Schedule H to the W-2s SSA processed and the 1099-Rs and W-2Gs the IRS holds (IRM 4.19.4.11(2), Mar. 28, 2018; IRM 4.19.22.2(1), July 2, 2025). The 98-C gives 45 days; no reply by the 11-cycle suspense posts status 91 and the intentional disregard penalty assesses automatically (IRM 4.19.4.3.1(5), June 11, 2025). The manual states no reply window for the 99-C. Replies go by mail or fax only; assistors may not give out the unit's phone number (IRM 4.19.4.11.1(4) to (7)). Never send a payment without this letter: "When the taxpayer submits a payment for the proposed discrepancy, and no correspondence is attached ... Assess the intentional disregard penalty" (IRM 4.19.4.3(9)). Keep one position per section and delete the sections that do not apply.
[Employer or payer legal name]
EIN: [00-0000000]
[Address of record with the IRS]
[Date]
Internal Revenue Service
CAWR Unit
[Address or fax number shown on the letter]
Re: Letter [98-C / 99-C] dated [date]; tax year [YYYY]; Form [941 / 943 / 944 / 945 / Schedule H]; field(s) named in the letter: [Social Security wages / Social Security tips / Medicare wages and tips / federal income tax withheld]
Dear Sir or Madam:
[Employer] has received your Letter [98-C / 99-C] for tax year [YYYY]. We have reconciled the amounts on our Forms [94X] for the year to the Forms [W-2 and W-3 / 1099-R / W-2G] filed for the same year and explain the difference below. This letter is our written response within the period stated on your letter. [If more time is needed: We ask that the case be suspended for 30 days from the date of this letter so that the enclosures marked "to follow" can be provided (IRM 4.19.4.3.29).]
1. The discrepancy as we understand it
Field | Per our Forms [94X] | Per Forms W-2 / 1099-R / W-2G | Difference |
Social Security wages plus tips | $[amount] | $[amount] | $[amount] |
Medicare wages and tips | $[amount] | $[amount] | $[amount] |
Federal income tax withheld | $[amount] | $[amount] | $[amount] |
The cause of the difference is [choose: wage statements filed under a different EIN ([00-0000000]) / a third-party sick pay arrangement with [name] / an amended return (Form 941-X) for quarter [n] that was not recorded / W-2s that were filed with SSA but not processed / W-2s that were not filed / 1099-R withholding deposited and reported under the plan administrator's EIN / withholding reported on the wrong line of Form 945 / a math or transposition error on Form [94X] for quarter [n]].
A. The Forms W-2 exist and are enclosed (or listed)
Enclosed are [copies of the Forms W-2 / a listing of the Forms W-2] for tax year [YYYY]. The listing shows, for each employee, the employee name, Social Security number, Social Security wages, Social Security tips, Medicare wages and tips, and federal income tax withheld, and totals to the Form W-3 amounts of $[SS wages], $[SS tips], $[Medicare wages] and $[FIT]. [These forms were filed with SSA on [date] by [method] / These forms were not previously filed and are being filed with SSA on [date].]
"If the taxpayer provides W-2 information in other than the official format (i.e., a computer listing providing the employee name, SSN, wages, tips, federal income tax withheld) accept the information as if it was the actual Form W-2" (IRM 4.19.4.3.1.3(2)). Do not send tape or disc: magnetic media is rejected with a Letter 2057-C and PRN 549 follows (IRM 4.19.4.3.7(1)). Original W-2s first filed in reply draw PRN 550 at the maximum per-form rate when there are two or more (IRM 4.19.4.3.1.2(1), 4.19.4.3.1.3(3)); say plainly whether they were previously filed, because the examiner will check BMFOLU and SSA's ORS or ERQY systems either way (IRM 4.19.4.3.1.2(2)).
B. The Forms W-2 were filed on time
The Forms W-2 and W-3 for tax year [YYYY] were filed with the Social Security Administration on [date] by [paper mail / electronic filing]. Enclosed are (1) a copy of the Form W-3 as filed, (2) copies of the Forms W-2 other than Copy A, and (3) [the certified mail return receipt dated [date] / the electronic filing acknowledgment dated [date], submission [number]]. [If SSA returned the submission: SSA returned the submission on [date] for [reason]; it was resubmitted on [date] and accepted on [date]; both acknowledgments are enclosed.]
"A copy of Form W-3 with a timely signature date should not be accepted alone as evidence because a fictitious document can be easily prepared. However, if a taxpayer provides a copy of Form W-3 and copies of Form W-2 other than copy 'A' along with a timely dated return receipt, all penalties should be abated" (IRM 4.19.4.6.1(1), Apr. 10, 2024). Returns "returned by SSA for an unprocessed condition, then never resubmitted" are penalized (IRM 4.19.4.6.1(3)); if a resubmission happened, prove it.
C. The Forms [941 / 943 / 944] were overstated
The Forms W-2 filed for [YYYY] are correct. The Form [941] for quarter[s] [n] overstated [Social Security wages / Medicare wages / tips] by $[amount] because [reason]. Enclosed is Form 941-X for each affected quarter, signed with an authorized original signature, reducing the reported amounts to the Form W-2 totals. We understand the account will not be reduced below the amounts reported on the Forms W-2 and W-3 (IRM 4.19.4.3.4(6)). [If a 941-X was already filed: A Form 941-X for quarter [n] was filed on [date]; a copy, marked "COPY," is enclosed with the reference lines totaled for verification.]
A 941-X requesting a decrease must carry an "Authorized Original Signature"; an unsigned one is returned and the case assessed anyway. A faxed signature is acceptable when the contact is documented (IRM 4.19.4.3.4(6), 4.19.4.3.22(2) to (4)). "Do not decrease the 94X account below the amounts reported on the Forms W-3/W-2 and W-3C/W-2-C" is the examiner's floor (IRM 4.19.4.3.4(6)). The manual concedes that "IRS processing errors in recording Forms 94X-X are often the source of out of balance conditions" (IRM 4.19.4.3.4(5)); a marked copy with the reference lines totaled lets the examiner math-verify it.
D. The Forms W-2 were understated; Forms W-2C are enclosed
The Forms [941] for [YYYY] are correct. The Forms W-2 understated [Social Security wages / Medicare wages] by $[amount] because [reason]. Enclosed are Forms W-2C and W-3C for [number] employees correcting boxes [3 / 5 / 7], filed with SSA on [date]. The corrected totals agree with the Forms [941] as filed. [If withholding is at issue: The federal income tax withheld shown on the Forms W-2C is the correct amount actually withheld.]
W-2Cs "that balance the case" abate the penalty; partial corrections abate the corrected portion (IRM 4.19.4.6.1(6)). Only Social Security or Medicare wage changes and SSN-only corrections are forwarded for CAWR purposes; a W-2C that changes only the pension indicator does nothing for the case (IRM 4.19.4.2.12(2), 4.19.4.3.40). On withholding, Chief Counsel has ruled that "IRS cannot hold employers liable for the federal income tax withholding shown on the original Forms W-2 if the amounts on the Forms W-2C are correct" (IRM 4.19.4.11.4(2) Note).
E. Form 945: 1099-R or W-2G withholding, or a plan administrator
[Choose one:] (1) The federal income tax withheld on Forms 1099-R for [YYYY], $[amount], was deposited and reported on Form 945 by the plan administrator, [administrator name], EIN [00-0000000], under its own EIN. [Employer] filed no Form 945 for the year because it withheld no nonpayroll tax under its own EIN. / (2) [Employer]'s Form 945 for [YYYY] reported $[amount] of withholding on Forms 1099-R and W-2G on line 2 (backup withholding) rather than line 1 (federal income tax withheld). The total tax on line 3 is correct. Enclosed is Form 945-X moving $[amount] from line 2 to line 1. / (3) The difference between Form 945 line 3 and the Forms 1099-R and W-2G, $[amount], is backup withholding under IRC 3406 reported in box 4 of [number] Forms [1099-NEC / 1099-MISC / 1099-INT / 1099-DIV] filed under this EIN, which total $[amount] on the Form 1096 (or electronic transmittal) filed [date].
"Discrepancies are usually caused when the taxpayer fails to file Forms 945/1099-R or has a third party administrator." When the administrator's EIN resolves it, the IRS verifies the EIN and cross-references the two accounts (IRM 4.19.4.3.33(1), Apr. 22, 2022). "The amounts reported on Forms 1099-R and W2-G are not generally subject to Backup Withholding, so the amount shown is Federal Income Tax Withheld" (IRM 4.19.4.3.32(1)). Backup withholding on other 1099s is not part of the CAWR match; the screener closes the case when PMFOL shows the same total (IRM 4.19.4.2.3).
F. A third party paid the tax or filed the returns
The [deposits / returns] for [YYYY] were made by [third-party name], EIN [00-0000000], on [Employer]'s behalf under [agreement / reporting agent authorization / common paymaster arrangement]. Enclosed are copies of the cancelled checks, front and back, payable to the United States Treasury, [or EFTPS confirmations] for the payments of $[amount] on [dates].
"Do not just accept the taxpayer's statement." The examiner needs the third party's name and EIN and a "Copy of the cancelled check (front and back) payable to the US Treasury" (IRM 4.19.4.3(11), June 11, 2025). If the information does not resolve the case the IRS assesses and tells the employer "they may need to contact their payroll service" (IRM 4.19.4.3.25(1)).
2. Penalty
[Choose one:] The enclosed documents balance the Forms [94X] to the Forms W-2 and no penalty applies. / We request that no penalty be assessed under IRC 6721(e) or 6721(a) for the reasons set out in the enclosed reasonable cause statement, which describes what [Employer] did when the error was discovered and the steps taken to prevent recurrence, and which covers the period from the original due date of the Forms W-2 through the date of this letter. / We do not contest the proposed employment tax of $[amount] and enclose payment; we do contest the penalty for the reasons in the enclosed statement.
First Time Abate does not apply to PRN 549 or 550; "These penalties can only be abated based on Reasonable Cause criteria" (IRM 4.19.4.3.1(1) Note). Once the examiner evaluates a reply, written supervisory approval under IRC 6751(b) is required before the penalty is asserted (IRM 4.19.4.7.1(2) to (7)). An agreed tax increase paid by the interest computation date is interest-free (IRM 4.19.4.3.2).
Contact
Questions may be directed to [name, title], [phone], [fax], [email]. [If a representative is used: Form 2848 for tax year [YYYY], Forms [94X] and civil penalties, is enclosed; it lists the specific periods.]
[Signature of officer or authorized person]
[Name], [Title]
[Date]
Enclosures: copy of Letter [98-C / 99-C]; [W-2 listing or copies]; [Form W-3 and non-Copy-A W-2s with return receipt]; [Form 941-X for quarters [n], signed]; [Forms W-2C and W-3C]; [Form 945-X]; [plan administrator name and EIN]; [cancelled checks, front and back]; [reasonable cause statement]; [Form 2848]
Send to the address or fax number on the letter and keep the fax confirmation; the CAWR unit cannot be reached by phone through IRS assistors (IRM 4.19.4.11.1(4) to (7)). A Form 2848 written for "All years" or "All periods" is not honored in this program; list the periods (IRM 4.19.4.3.38(2) and (3)). Keep the address of record current with Form 8822-B: an undeliverable CAWR letter is assessed as a no-reply with the full 15 percent failure-to-deposit penalty, and the IRS will not update an address from returned mail (IRM 4.19.4.5.1, 4.19.4.7.4(4) Note).