What Does an IRS 60-Day Review Letter Mean for Your Tax Return?

Receiving an IRS 60-day review letter can be unsettling for taxpayers. This notice means the IRS needs additional time to process your tax return, which may delay refunds or require further documentation. Understanding why this happens and how to respond can help manage expectations and prepare effectively.

Common Factors That Initiate the Process

The IRS 60-day review letter is often triggered by discrepancies in a taxpayer’s return. A frequent cause is mismatched information between the return and third-party data, such as W-2s or 1099s. For example, if an employer reports a different income amount than what you filed, the IRS may need time to reconcile these figures to ensure accuracy.

Complex deductions or credits can also prompt reviews. Claims like home office expenses or charitable contributions may require additional documentation, especially when they deviate significantly from norms for similar income brackets. For instance, a taxpayer reporting unusually high medical expenses may need to provide detailed receipts.

Changes in tax laws can lead to more reviews as the IRS verifies compliance with updated regulations. New credits or modifications, such as changes to the Earned Income Tax Credit, can create confusion, causing taxpayers to inadvertently file incorrect returns that require further scrutiny.

Verification and Documentation

A 60-day review letter signals that the IRS is verifying your return by cross-referencing it with internal and external data sources. This process uses sophisticated algorithms to identify discrepancies and ensure compliance. Tax returns are compared with data from financial institutions, employers, and other agencies.

Taxpayers may need to provide supporting documentation, including receipts, bank statements, and invoices. For business expenses, evidence like contracts or agreements may be required. Organized records are crucial, as the IRS can request documentation for several years, depending on the case.

This process also helps detect fraud. Failing to supply the requested documents within the given timeframe can result in penalties or adjustments to your return. Proactively responding to the IRS and maintaining comprehensive records can minimize potential consequences.

Distinguishing a Review From an Audit

It’s important to understand the difference between an IRS review and an audit. A review is a preliminary check to resolve minor inconsistencies or gather additional information. It’s generally limited in scope and ensures submitted data aligns with IRS records.

An audit, however, is a deeper examination of a taxpayer’s financial records and may cover multiple years. Audits are conducted through correspondence, office meetings, or field visits, depending on the complexity. They require extensive preparation and often benefit from professional assistance.

While a review typically focuses on specific areas, an audit demands broader documentation, such as bank statements and detailed receipts. The comprehensive nature of audits may necessitate the involvement of tax professionals who can navigate IRS regulations and procedures.

Implications for Refunds

A 60-day review letter can delay tax refunds, as funds are usually placed on hold until the review concludes. This can be challenging for taxpayers relying on refunds for immediate financial needs. The length of the delay depends on the complexity of the review and how quickly taxpayers respond to requests for information.

Refunds delayed beyond 45 days after the filing deadline may accrue interest at the federal short-term rate plus 3%. While this offers some compensation for lengthy delays, it doesn’t address immediate cash flow concerns.

Next Options if the Process Continues

If the review extends beyond the expected timeframe, taking proactive steps is crucial. Contacting the IRS directly can help resolve issues faster. Alternatively, taxpayers can seek assistance from the IRS Taxpayer Advocate Service, which supports individuals facing prolonged delays or hardships.

For unresolved cases, consulting a tax professional or attorney can provide valuable guidance. These experts can identify potential errors, clarify complex tax laws, and represent taxpayers in communications with the IRS. Professional advice can be instrumental in addressing delays and ensuring compliance.

Taking these steps not only resolves current issues but also helps prepare for future tax filings by identifying areas of improvement. Maintaining organized records and staying informed about tax law changes can reduce the likelihood of similar complications in subsequent years.