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What To Do When Your Tax Return Is Under Review by IRS

– What To Do When Your Tax Return Is Under Review –

Get familiar with what to do when your Tax return Is Under Review. When the IRS opts to inspect your tax return, that can only increase your anxiety level. Getting your return flagged for review doesn’t mean you’ll be audited, but it can raise the odds that the numbers don’t add up. It helps to understand why returns are flagged and what reviews involve.

What To Do When Your Tax Return Is Under Review

 

The idea of an IRS review isn’t especially appealing.

However, it’s not always something to make you panic. A review could be anything from a simple automated scan for errors to manual reviews done thoroughly by IRS personnel.

If the IRS ever finds an issue with your tax return, the problems raised are usually easily solved.

How Tax Returns Are Selected For Review

The most common reason for the IRS to review a tax return is called the Discriminant Function System (or DIF) score.

The IRS uses a computerized scoring model that evaluates your return and gives it a score based on the likelihood that it will need to be changed.

To determine this score, the model compares your return to similar returns that the IRS received in past years.

A second model, the Unreported Income DIF (or UIDIF) score, rates your return on the probability that you didn’t fully report your income.

Returns that receiver high DIF or UIDIF scores are more likely to be pulled aside for review.

Factors that could trigger a high score include having a substantially higher or lower amount of reported income compared to the previous year, claiming excessive deductions for business expenses, or leaving a 1099 form off your return.

It is also worth mentioning that the IRS randomly selects a small percentage of tax returns to review.

The IRS compares these returns to a sample of “normal” returns to see if there are any discrepancies.

What An Irs Review Involves

If the IRS decides that your return merits a second glance, you’ll be issued a CP05 Notice.

What To Do When Your Tax Return Is Under Review

This notice lets you know that your return is being reviewed to verify any or all of:

  • Your income
  • Your tax withholding
  • Tax credits you claimed on your return
  • The withholding claimed on your Social Security benefits
  • Schedule C income
  • Claims for household help

You’re not expected to do anything. The IRS will attempt to verify whatever information triggered the review.

In the meantime, you won’t be issued a refund if you’re expecting one. If you owe taxes, you will still need to pay by the tax filing deadline to avoid a penalty.

How long the review process takes depends on what information the IRS needs to verify.

If you hear nothing within 45 days from the initial notice, however, you can follow up to see what happened to your refund.

Why Your Tax return Is Under Review

When the IRS officially places your return under review, you will receive a CP05 notice, and the processing of your refund will be delayed until the review is complete. This notice lets you know that your return is being reviewed to verify any or all of:

  • Income is not overstated or understated.
  • Tax withholding amounts are correct.
  • You may claim the tax credits on your return.
  • Social Security benefits withholding amounts are correct.
  • Household help is accurately reported.
  • Schedule C income is not overstated or understated.

What Next?

You’re not expected to do anything. The IRS will attempt to verify whatever information triggered the review.

In the meantime, you won’t be issued a refund if you’re expecting one. If you owe taxes, you will still need to pay by the tax filing deadline to avoid a penalty.

How long the review process takes depends on what information the IRS needs to verify.

If you hear nothing within 45 days from the initial notice, however, you can follow up to see what happened to your refund.

What to do If there is a Delay

The IRS recommends you take the following steps if you have additional questions:

  • 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 selected in error because of the inadequate screening of IRS systems.
  • Authorize a professional tax preparer or accountant to communicate with the IRS on your behalf by submitting Form 2848 (Power of Attorney and Declaration of Representative).

Potential Outcomes Of A Tax Review

There are several different scenarios that can play out when your tax return is flagged. The best thing you can do is hope for the best and plan for the worst.

Obviously, the best outcome is for the IRS to find that your information is correct and process your refund.

The IRS could verify your information and determine that you owe more in taxes. If it’s a difference of only a few hundred dollars, that may not be problematic.

But if it’s several thousand dollars, you could find yourself in a financial bind.

Applying for an IRS installment agreement can give you time to pay it off.

Just know that you’ll have to pay penalties and interest until the balance is wiped out.

Finally, there’s the chance that the initial review could lead to a full-scale audit.

In that case, the IRS would look at every aspect of your return to determine whether you’ve reported your income properly and paid the amount of tax.

The IRS can go back through three years’ worth of returns or review up to six years if they find a serious error.

What to know about IRS Audits

Your return could also be selected for a tax audit.

If the auditor that initially reviews your return thinks it is necessary to conduct a more thorough examination, it will be forwarded to an examining group and reviewed by a manager to determine if it is best to move forward with a full-fledged audit or accept the return as is.

Tax audits are performed via mail or in-person.

If You’re Flagged for Review

If your return is flagged for review, remain calm.

Cooperate with the IRS (if they request additional documentation) to ensure your return is processed in the most seamless and rapid manner possible.

Conclusion

If your return is flagged for review, remain calm.

Cooperate with the IRS (if they request additional documentation) to ensure your return is processed in the most seamless and rapid manner possible.

We hope this article has been helpful to you. Please share it with anyone you think will appreciate the information and kindly drop your comment below.

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