Receiving a letter from the IRS can be an anxiety-inducing experience. One such letter, the CP05 notice, often raises questions and concerns. This article aims to demystify the CP05 notice, explain its implications, and provide actionable steps to help you navigate this situation.
What Is a CP05 Notice?
A CP05 notice is a communication from the IRS indicating that your tax return is under review. This notice serves as an alert that your refund might be delayed and that the IRS may require additional information from you. Importantly, a CP05 notice does not imply that you have made a mistake or committed an error; it is merely an informational alert.
The IRS may review various aspects of your tax return, including your income, tax withholding, tax credits claimed (such as the Earned Income Tax Credit or Additional Child Tax Credit), or Schedule C business income. The notice is designed to ensure the accuracy of your tax return and protect both you and the IRS from potential discrepancies.
Do I Need to Take Action?
Upon receiving a CP05 notice, it is crucial to open and read the letter carefully. In many cases, no immediate action is required on your part. The IRS is simply informing you of the review process and potential delays. However, it is advisable to follow any instructions provided in the letter.
If you are unsure about the content of the notice, seek assistance. Low-income taxpayer clinics, the IRS tax toolkit, or private tax advisors can provide valuable guidance. If you used a tax preparer or have audit protection through your tax preparation software, notify them immediately. They can offer specific advice tailored to your situation.
Is This an Audit?
A CP05 notice is not an audit. While it may feel intimidating, it is a less severe form of review. The IRS sends notices to ensure the accuracy of tax returns and to protect taxpayers from potential errors. Most tax returns are accepted as filed, and refunds are typically processed within 60 days. Only a small percentage of returns are selected for more detailed review or audit.
Certain factors may increase the likelihood of your return being reviewed, such as claiming specific tax credits (e.g., Earned Income Tax Credit or Additional Child Tax Credit) or significant changes in income from the previous year. However, these factors do not guarantee an audit, and you should not be deterred from claiming legitimate credits and deductions.
What Happens Next?
Within 60 days of the CP05 notice, the IRS will send a follow-up letter, either a CP05A or a CP05B. These letters will provide specific instructions on the information the IRS requires. It is essential to respond within 30 days to avoid further delays or complications.
CP05A Notice
The CP05A notice indicates that the IRS has paused processing your return until it receives the requested information. Commonly requested items include wage or income verification, such as pay stubs, copies of checks, or employment verification letters. Follow the instructions carefully and include the contact stub provided in the notice when submitting your response.
CP05B Notice
The CP05B notice explicitly states that your refund is being held until the review is complete. This notice will detail the specific information needed to finalize the review. Respond promptly and ensure you keep copies of all documents sent to the IRS.
IRS Proposed Adjustments
After reviewing the information you provide, the IRS may propose adjustments to your tax return. Before agreeing to any changes, consult with a tax advisor. If you disagree with the proposed adjustments, you can request a conference with an IRS examiner or appeal the decision.
If you agree with the adjustments, sign the proposed changes, and the IRS will process your adjusted refund within six to eight weeks. If you owe additional taxes, consider using low-interest financing options to settle the debt, as IRS payment plans can be challenging to exit.
Receiving a CP05 notice from the IRS can be unsettling, but it is important to remain calm and proactive. Understand that this notice is a routine part of the tax review process and does not necessarily indicate an error on your part. Follow the instructions provided, seek assistance if needed, and respond promptly to any follow-up communications.
By staying informed and taking appropriate action, you can navigate the CP05 notice process smoothly and ensure that your tax matters are resolved efficiently.
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