What Does a CP05 Letter From the IRS Mean and What Should You Do?

Receiving a CP05 letter from the IRS can be concerning, especially if you’re expecting a tax refund. This notice means the IRS is reviewing your return to verify certain information before processing any refund or credit you may have claimed. While it doesn’t necessarily indicate a problem, it does mean additional checks are being conducted.

Common Triggers for Receiving the Letter

The IRS issues a CP05 letter when aspects of a tax return require further examination before releasing a refund. A significant change in reported income compared to previous years is a common reason. If earnings fluctuate drastically—due to a new job, a large one-time payment, or self-employment income—the IRS may pause processing to confirm accuracy. Those with multiple income sources may face scrutiny if their reported earnings don’t align with W-2s or 1099s.

Tax credits that reduce liability or increase refunds, such as the Earned Income Tax Credit (EITC) and Additional Child Tax Credit (ACTC), are often reviewed due to potential fraud or miscalculation. If a return claims these credits without sufficient supporting data, the IRS may delay processing. Large deductions, such as charitable contributions or business expenses, can also trigger a review if they appear inconsistent with prior filings or industry norms.

The IRS may also flag returns when reported figures don’t match third-party records from employers, banks, or financial institutions. Omitted income, misreported investment gains, or inconsistencies in deductions can prompt additional verification.

Document Verification Requirements

A CP05 letter may lead to a request for additional documentation before processing a refund. This often involves verifying filing status, dependents, or deductions. For instance, taxpayers filing as Head of Household may need to provide records proving they paid more than half the cost of maintaining a home for a qualifying person. Claiming dependents may require submitting birth certificates, school records, or medical statements.

Income sources without third-party verification may also be scrutinized. While W-2 and 1099 forms are sent directly to the IRS, other earnings—such as rental income or cash-based business revenue—may require proof like bank statements, lease agreements, or invoices. Business expenses under review may necessitate receipts, mileage logs, or detailed accounting records.

For those with foreign financial assets, the IRS may request documentation related to offshore accounts or foreign income. Taxpayers with assets exceeding reporting thresholds under the Foreign Account Tax Compliance Act (FATCA) or the Foreign Bank Account Report (FBAR) requirements may need to submit statements from foreign institutions.

Refund Discrepancies

A CP05 review can lead to adjustments in the expected refund if errors, miscalculations, or unverified claims are found. The IRS may modify the return, reducing the refund or, in some cases, resulting in a balance due.

One common issue involves employer-reported withholdings. If amounts listed on W-2 or 1099 forms don’t match what was reported on the return, the IRS may adjust the refund. This can happen if an employer corrects a previously issued form or if a taxpayer enters incorrect figures. Similarly, discrepancies in estimated tax payments—often made by freelancers or self-employed individuals—can lead to adjustments if IRS records differ from what the taxpayer reported.

Debt offsets can also reduce refunds. The Treasury Offset Program (TOP) allows federal and state agencies to claim a portion of a taxpayer’s refund to cover outstanding debts, such as unpaid child support, defaulted student loans, or past-due federal or state taxes. If a refund is smaller than expected, taxpayers should check whether any offsets have been applied by reviewing their IRS account online or contacting the Bureau of the Fiscal Service.

Time Frames for Resolution

Once a CP05 letter is issued, the IRS states the review process may take up to 60 days from the notice date. This period allows the agency to conduct checks, compare reported information with third-party data, and determine whether further action is required. While many cases are resolved within this window, certain factors can extend the timeline, particularly if additional documentation is requested or if the return is flagged for a more in-depth audit.

Processing delays can occur if a return is selected for manual review rather than being verified through automated systems. Manual reviews take longer, especially during peak tax season. If discrepancies require a taxpayer response, such as unverified income or questionable deductions, the IRS may send follow-up correspondence, further prolonging resolution. In such cases, the 60-day estimate resets from the date the new notice is issued, potentially adding weeks or months to the process.

Methods to Monitor Progress

Tracking the status of a CP05 review is important, especially if a refund is on hold. The IRS provides several ways to monitor progress. The most efficient method is using the “Where’s My Refund?” tool on the IRS website or the IRS2Go mobile app. This system updates daily and provides real-time information on whether a return is still being processed or if further action is required.

For more detailed updates, taxpayers can access their IRS account online, which provides a transcript of their tax return. The “Account Transcript” section may show adjustments, requests for additional documentation, or other IRS actions. If the review extends beyond the expected time frame, calling the IRS at the number listed on the CP05 letter can provide clarification, though wait times may be long. Mailing inquiries is another option, but responses can take several weeks. If a taxpayer has hired a tax professional, they can also request updates on their behalf.

Next Steps if Issues Remain

If the IRS has not resolved the CP05 review within the expected time frame or if the taxpayer disagrees with the outcome, further action may be necessary. If additional documentation is requested, responding promptly with clear and organized records can help expedite the process. If the IRS determines that adjustments are needed but the taxpayer believes the changes are incorrect, filing an appeal through the IRS Independent Office of Appeals may be an option.

For prolonged delays with no resolution, contacting the Taxpayer Advocate Service (TAS) may be beneficial. TAS assists taxpayers experiencing significant hardships due to unresolved tax issues. If a refund is urgently needed due to financial hardship, TAS may help expedite processing. In rare cases where the IRS fails to act despite multiple follow-ups, filing a formal complaint or requesting assistance from a congressional representative can sometimes prompt faster resolution. Keeping records of all communication with the IRS, including dates of calls and copies of submitted documents, can be useful if further escalation is required.