Every year the IRS delays issuing tax refunds to a certain percentage of taxpayers for various reasons. Some of the most common reasons why tax return processing is delayed are fraud, incorrectly calculated taxable income amounts, or identity theft.
The IRS reference number 1242 indicates that your tax return was flagged for review because it raised fraud or identity theft concerns.
Although this might sound alarming, seeing this reference number isn’t a reason for concern because the IRS system often flags tax returns for review randomly. Hence, you just have to confirm the information you included in your tax return to resume its processing.
Let’s look at the reasons why the IRS reference number 1242 might show up on your tax account and what you can do to resolve the issue quickly.
Table of Contents
The Meaning of the Reference Number 1242
After you e-file a return, the IRS will need a few weeks to add it to the Individual Master File system. This system screens all tax returns and compares them to specific pre-set parameters calibrated to detect inconsistencies and fraudulent activities.
As a result, your tax return might be flagged for review if you claimed an unusual amount of tax credit and countless other reasons. The primary purpose of IRS reference number 1242 is to inform taxpayers that their tax return processing will be frozen until the issue is resolved.
The IRS system mainly uses the random sampling method when flagging and selecting tax returns for review. Hence, the reference number 1242 doesn’t indicate whether a taxpayer has filed a return incorrectly or was being dishonest.
Computer screening and comparing the information from Form W2 and Form 1099 are also among the methods the IRS uses to select tax returns for further review.
Finding the Reference Number 1242
The IRS Where’s My Refund tool enables taxpayers to monitor the status of their tax returns. The tool’s Refund Status section will show the reference number 1242 if the IRS flags your tax return for an additional review.
In most cases, the section’s top segment will show ‘We have received your tax return, and it is being reviewed’ message, followed by the Tax Topic 152, Your Appeal Rights link.
You’ll find the IRS reference number at the bottom of this section within the following message:
‘Please mention reference number 1242 to the IRS customer service.’
This message doesn’t mean you must reach out to the IRS. In fact, you must wait until you receive the CP05 Notice before attempting to fix the problem.
Receiving CP05 Notice
The IRS will send you the CP05 Notice shortly after freezing the processing of your tax return. This Notice usually informs taxpayers that their tax return is under review and doesn’t require any specific action from them.
However, the IRS can use this Notice to request specific taxpayer documents.
The document has the ‘What you need to do’ section that outlines the actions you can take and sets the deadline by which the tax return review should be completed. The IRS usually needs sixty days to review a tax return and unfreeze its processing.
Resolving the IRS Reference Number 1242 Issues
If the CP05 Notice you received contained a request for additional information, you should start gathering the documents the IRS requested as soon as possible.
Don’t send the original documents. Instead, make two copies of each document you need to send to the IRS. Keep one and send the other to the IRS via mail. Find the routing number on the CP05 Notice and use it to ensure your documents are delivered to the correct department.
Ideally, you’ll send the requested documents to the IRS within a month to avoid delaying the processing of your tax return for longer than necessary.
If you must go to the nearest IRS office to confirm your identity, you should do so a few days after you get the CP05 Notice.
The IRS urges taxpayers to wait 45 days from the moment they receive a CP05 notice before asking for an update on their tax return’s processing status.
Notice CP05 contains instructions on what to do if you have additional questions. Additionally, you can contact the Taxpayer Advocate Service (TAC) if you can’t resolve the reference number 1242 issue with the IRS on your own.
Optionally, you can get in touch with the Low Income Taxpayer Clinic (LITC), which can assist you in finding a solution for your problem free of charge.
How to Avoid Seeing the Reference Number 1242 on Your Next Tax Return?
The fact that most tax returns the IRS system flags for a return are selected randomly suggests there’s nothing you can do to avoid seeing the reference number 1242 in the future.
Using tax software to prepare and e-file your taxes will minimize the margin of error and reduce the chances of your tax return getting flagged for review due to incorrect information.
Hence, double-checking the information you include on a tax return and ensuring it matches the information the IRS got from your employer on Form W2 or Form 1099 is the only way to avoid having your tax return frozen.
Frequently Asked Questions
The IRS will need between 60 and 120 to complete the review of your tax return from the moment it freezes its processing and adds reference number 1242 to your account.
The reference number 1242 doesn’t mean the IRS will audit your tax return by default. This reference number only indicates that the IRS plans to conduct an additional review of your tax return. However, you might be facing an audit if the review reveals one or more audit triggers.
You don’t have to call the IRS as soon as you see the reference number 1242 in the Refund Status section of the Where’s My Refund app. Instead, you should follow the instructions regarding further steps from the CP05 Notice.
Although taxpayers have this option, appealing the reference number 1242 is often unnecessary because it simply indicates that the IRS must validate certain tax return information.
Contact a CPA
A tax professional can help you prepare a tax return and ensure that all information you submit to the IRS is accurate.
Visit choicetaxrelief.com or call 866-800-TAX to schedule a free consultation with a CPA who can help you complete a tax return or interpret Notice CP05 correctly.
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.
