Filing taxes is a chore, albeit a necessary one. Having your taxes flagged and put under review by the Internal Revenue Service (IRS) will give anyone goosebumps. If it happens to you, stay calm. IRS agents aren't going to drop the proverbial guillotine hanging over your head just yet. We're here to help you break down what a refund review means and what you should do about it.
Reasons Why Your Taxes Are Under Review
When the IRS officially places your return under review, you'll receive a CP05 notice. This will immediately put your refund processing on delay until the review is complete. However, if you owe money, you're still expected to pay the IRS no matter that your refund is on hold. According to the IRS website, several distinct factors can trigger this review.
During this review, the IRS will be looking to find a few specific things.
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Income is not overstated or understated.
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Tax withholding amounts are correct.
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You have the right to claim the tax credits on your return.
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Social Security benefits withholding amounts are correct.
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Household help is accurately reported.
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Schedule C income is not overstated or understated.
Review Triggers
There's no hard and fast way to determine why your return was selected for a review. Chalk it up to bad luck? Perhaps a little. According to the IRS website, "returns [are selected] for examination using various methods which include random sampling, computerized screening, and comparison of information received by the IRS such as Forms W-2 and 1099." If your return is selected for a review, it doesn't necessarily indicate or suggest you made a mistake or deliberately misreported your information. So you can breathe a sigh of relief.
Upon receiving the CP05 notice, the IRS recommends you take the following steps if you have additional questions or concerns.
- Consult with your tax preparer to gain a better understanding of the notice.
- Call the toll-free number listed at the top of the notice to receive additional information.
- Call the Taxpayer Advocate Service (TAS) hotline at 1-877-777-4778 if you believe your return has been incorrectly selected due to inadequate screening.
- Authorize a professional tax preparer or accountant to communicate with the IRS on your behalf by submitting a Form 2848 (Power of Attorney and Declaration of Representative).
How to Avoid an IRS Review
One of the only ways you might be able to decrease your chances of being reviewed is to make sure you report all information as truthfully as possible. Underreporting income and a high amount of deductions are common audit triggers. However, folks are human and mistakes can happen! Sometimes a review is just that — a closer look to make sure the information is correct. In some cases, all you need to do is make a correction and then your refund can get immediately processed.
When your taxes are under review, it's normal to wonder if you'll still get your refund. The answer is, it depends. If your information checks out, your refund will be processed. If there's a discrepancy, and you've incorrectly reported, you may end up owing instead of receiving a refund.
Related: How to Estimate Your Tax Refund
What Happens When the Review Is Complete?
Once the review is completed and everything's sound, the IRS will make the necessary adjustments and issue your refund accordingly. If there's anything additional needed, they'll delay the refund further. In some cases, you may receive a CP05A or CP05B notice.
- CP05A: The CP05A notice requires you to send more information to support your income write-ins and federal tax withholding. You'll have 45 days to send documentation of your wages.
- CP05B: With a CP05B notice, the discrepancy is in the amount reported by the taxpayer and the amount from the employer. The notice will detail what they need in this case, and the information must be sent within 30 days.
Still Waiting on a Review?
It could feel like an eternity waiting for the IRS to get back to you regarding your tax review. But this is a don't call us, we'll call you kind of situation. If you feel that waiting is the hardest part (queue Tom Petty to soothe your nerves), the IRS encourages taxpayers to wait at least 45 days from the day you receive the CP05 notice to follow up about its status IF you haven't received your refund yet. Use the number found on the notice to ensure you're sent to the correct department.
The review process can take a bit of time. In some cases, it's about 45 days, and in others, it's up to 180 days before you hear back. If you find yourself waiting, try not to think the worst. Take the time to double-check your information and gather any paperwork you may need to submit so you're ready to share documents if asked.
IRS Audits Might Be Around the Corner
Your return could also be selected for a tax audit. If the auditor that initially reviews your return thinks a more thorough investigation is necessary, your return will be forwarded to an examining group and reviewed by a manager. They'll determine if it's best to move forward with a full-fledged audit or accept the return as is. This is the moment your palms will really start to sweat.
Just remember that audits happen to the best of us, and not every audit has a bad outcome!
Tax audits are either performed via mail or in person. See the IRS Audit FAQs for additional information.
Don't Fear an IRS Review
Having your taxes flagged for review is a drag — especially if you were counting on that money to pay a big expense like a new computer or for finishing home renovations. Still, try to remain calm. Your money might just be delayed for a bit while they gather more information. If they need more details from you, get them sent in as soon as possible to avoid even more delays. So long as you've been honest on your taxes, you've got nothing to worry about.
