All US taxpayers hope to receive their tax refunds as soon as possible, but this isn’t always the case, as the IRS might select your tax return for an additional review.
You’ll receive a CP05 notice informing you that the IRS will withhold your refund until they verify the accuracy of the information on your return.
The notice only indicates your refund will be delayed. Still, after completing the review, you will receive an entire or adjusted refund amount if no tax liability is assigned to your account.
Understanding a CP05 notice can be difficult if you’re unfamiliar with the language the IRS uses on its official documents. In this guide, we’ll explain all you need to know about what a CP05 notice from the IRS is and what you need to do after you receive it.
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A Quick Look at a CP05 Notice
A CP05 notice is a letter the IRS sends to taxpayers if the IMF system or an IRS agent flags a tax return for an additional review.
Reference number 1242 will appear on your Where’s My Refund account to inform you that the processing of your return is on hold and that you’ll receive a CP05 notice via mail.
Your name, address, city, and state zip will be below the IRS logo and address in the upper right corner of the notice’s first page. The upper left corner of the same page contains the following information:
- Notice
- Tax year
- Notice date
- Social Security Number
- The IRS’ telephone number
- Taxpayer’s caller ID
The middle section of the document will contain a message about your tax return for the tax year in question. It reads: ‘We’re holding your refund until we finish reviewing your tax return.’
You’re not required to send any information to the IRS or contact its representatives after receiving the CP05 notice.
Reasons The IRS Might Send You a CP05 Notice
The Individual Master File (IMF) system that processes all tax returns the IRS receives during a filing season sometimes randomly flags returns for an additional review.
However, the IRS will send you a CP05 after one of its officers reviews your return and determines that an additional review is necessary.
The letter states that your return was selected for review in order to confirm the accuracy of your income, income tax withholding, tax credits, or business income.
Hence, the IRS might send you this notice for the following reasons:
- Your total income or income tax withholding was incorrectly reported – The IRS will look closely at your return if the tax withholding or total income amounts on the return don’t match the information on Form W2.
- You claimed credits you’re not eligible for – Your return could be flagged for a review if you claimed Earned Income Tax Credit, American Opportunity Tax Credit, Child Tax Credit, or some other tax credit.
- You reported erroneous profit or loss from a business – Some of the information on Schedule C could be incorrect if you received Notice CP05 from the IRS.
- The IRS is trying to rule out identity theft – If your tax return doesn’t contain sufficient information to confirm your identity, the IRS will send you a CP05 notice requesting additional proof.
Please remember that the notice doesn’t provide the exact reason the IRS put the processing of your return on hold.
What to do After You Receive a CP05 Notice From The IRS?
The first thing you should do after you receive the CP05 notice is open it and read it carefully. Don’t hesitate to ask for professional help if you’re having difficulty understanding the contents of this letter.
Still, consulting a tax professional as soon as you receive a CP05 notice might be unnecessary because its purpose is only to inform you that the IRS will withhold your refund until your tax return is reviewed. The review period lasts between 45 and 60 days.
The letter doesn’t contain instructions regarding the steps you should take, and it states that the IRS will contact you if they have any questions. Hence, you won’t have to do anything during this time.
The IRS will release your refund if the review shows that you don’t have to supply additional documents or take any extra steps. However, you must call the IRS number on the CP05 notice if you don’t get your refund two months after receiving the letter.
Follow-Up Steps
You’ll receive the CP05A notice and, subsequently, the CP05B notice if the IRS needs more information to approve your refund.
These letters contain requests for additional documents you must send to the appropriate address. You’ll have a month to respond to CP05A or CP05B notices.
You’ll most likely be asked to confirm your income or tax withholding information by providing a copy of your pay statements. The letter contains a contact stub you should include with the rest of the documents you send to the IRS.
CP05A Notice
This letter informs you that the IRS completed your return’s initial review and ‘needs more information to determine whether you’re due a refund.’
The document lists why the IRS needs more information to determine if you’re due a refund.
- Incorrectly reported income on your return
- Incorrectly reported income tax withholding on your return
- Incorrectly claimed tax credits on your return
- Incorrectly claimed withholding on your Social Security benefits
- Incorrectly claimed Household help
- Incorrectly claimed Schedule C income
CP05A also provides instructions regarding what you need to do next.
If You Didn’t File a Return
You must contact the IRS if you received a CP05A notice even though you didn’t file the return to inform them you suspect that your identity was stolen.
Afterward, you should fill out Form 14309 Identity Theft Affidavit and mail it to the IRS with the rest of the documents the IRS requested in the CP05A notice.
If You Filed a Return
The IRS might request different documents depending on the issue that caused them to freeze the processing of your return. In most cases, you’ll have to present the following documents:
- Copies of pay statements and check stubs that show tax withholdings, gross income, and date.
- Copies of canceled checks for household help that show when and how much income you received.
- A notice on company letterhead from your employer that reveals your date of employment, wages, and tax withholding amount.
- Copies of canceled checks, checks paid to the Schedule C business, invoices from or to the Schedule C business, or the business’s bank statements.
CP05B Notice
You’ll receive a CP05B notice from the IRS if you fail to respond to the CP05A notice within thirty days.
This letter will reiterate the request for your pay statements, check stubs, and a notice on company letterhead with your gross wages, tax withholding amount, and date of employment.
Resolution of a CP05 Notice Issue
The IRS will suggest adjusting your refund amount after reviewing the additional documents you mail to them. You can agree to the adjustment by signing a document specifying the proposed adjustment’s terms.
Alternatively, you can appeal this decision or meet the IRS officer in charge of your case to discuss the adjustment.
In case the adjustment generates a tax liability, the IRS will issue a Notice of Deficiency if you don’t reach an agreement within 90 days stating your tax debt.
On the other hand, you’ll be issued a tax refund six to eight weeks after the IRS reviews your documents and determines you don’t owe federal taxes.
Still, the IRS resolves most CP05 notice issues without requesting additional information from taxpayers, so chances are you’ll receive the full refund after the review of your return is completed.
Frequently Asked Questions
Taxpayers must file an amended tax return after receiving a CP05 notice if their original return contains math or clerical errors.
This notice doesn’t indicate that the IRS intends to audit your tax return. A CP05 notice only informs you that the IRS will postpone issuing your refund until it completes the review of your return.
The IRS might disallow your refund and send you a notice informing you owe additional taxes if you don’t respond to the notice within thirty days.
You might receive this notice even if all information you included on your tax return is accurate because the IRS wants to double-check if you calculated your withholding tax amount and claimed tax credits correctly.
Should You Be Worried About a CP05 Notice?
Getting a CP05 notice isn’t a reason to worry. The letter doesn’t request any action on your part, so you must be patient and wait for the IRS to complete the review of your tax return.
You’ll receive your refund up to two months after getting this notice if the review doesn’t reveal anything wrong with your return.
However, you must act quickly if the IRS sends you CP05A or CP05B notice and send all the documents they need to complete the review of your return.
The IRS might adjust your refund amount and assess the additional tax to your account, so you may have to pay the taxes you owe to resolve the CP05 notice issue.
Author:
Logan is a practicing CPA and founder of Choice Tax Relief and Money Done Right. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.
