What Is IRS Letter 105C and How Should You Respond?

Receiving a letter from the IRS can be stressful, especially if you’re unsure why it was sent. One such notice is IRS Letter 105C, which informs taxpayers that their claim for a tax refund or credit has been denied. Understanding what this letter means and how to respond can help prevent complications with your tax records.

Purpose of Letter 105C

The IRS issues Letter 105C to notify taxpayers that their refund or tax credit request has been denied. This decision is based on a review of the claim, where the IRS determines the taxpayer is not entitled to the amount requested. The letter serves as an official record of the denial and explains the reason for the rejection.

One common reason for denial is that the statute of limitations for claiming a refund has expired. Under Internal Revenue Code 6511, taxpayers generally have three years from the original filing date or two years from when the tax was paid—whichever is later—to request a refund. Claims submitted after this period are denied.

Another reason is that the IRS found no record of an overpayment. If a taxpayer believes they overpaid, they must provide supporting documentation, such as payment records or prior tax returns. If the IRS’s records do not match, the refund request will be rejected.

The IRS may also deny a refund if a taxpayer has already received a refund for the same overpayment. Duplicate claims are rejected to prevent improper disbursements. Additionally, if a refund request is based on a tax credit the taxpayer does not qualify for, the IRS will issue Letter 105C explaining the disallowance.

Common Errors Leading to Letter 105C

Several mistakes can lead to the IRS denying a refund or tax credit claim. Understanding these errors can help taxpayers avoid issues when filing an amended return or requesting a refund.

Inaccurate Income Figures

A common reason for a denied refund request is discrepancies in reported income. The IRS cross-checks tax returns with information from employers, financial institutions, and other third parties. If the income reported on a refund claim does not match IRS records, the claim may be denied.

For example, if a taxpayer reports $50,000 in wages but their employer reported $55,000 on a W-2, the IRS will flag the discrepancy. Similarly, if a taxpayer omits income from freelance work reported on a Form 1099-NEC, the IRS may reject the claim.

Taxpayers should review their tax documents carefully before submitting a refund request. Comparing reported income with official tax forms and using IRS-provided transcripts can help ensure accuracy. If an error is found after filing, submitting a corrected return using Form 1040-X may be necessary.

Missing Information

A refund claim may also be denied if required details are missing. The IRS requires complete and accurate information to process refund requests, and any omissions can lead to rejection. Missing Social Security numbers, incorrect filing statuses, or incomplete explanations for adjustments can all result in Letter 105C being issued.

For instance, if a taxpayer files an amended return to claim a refund but does not include supporting documentation, such as a corrected W-2 or proof of tax payments, the IRS may reject the request. Similarly, if a taxpayer claims a deduction or credit without providing the necessary schedules or forms, such as Schedule A for itemized deductions or Form 8862 for claiming the Earned Income Tax Credit after a previous disallowance, the IRS may deny the claim.

To prevent this issue, taxpayers should double-check that all required forms and supporting documents are included. Using tax preparation software or consulting a tax professional can help ensure all necessary details are provided.

Conflicting Tax Credits

Taxpayers sometimes claim credits they are not eligible for, leading to a denial of their refund request. The IRS carefully reviews tax credit claims to prevent improper payments, particularly for refundable credits such as the Earned Income Tax Credit (EITC), Child Tax Credit (CTC), and American Opportunity Credit (AOC). If a taxpayer claims a credit they do not qualify for, the IRS will issue Letter 105C explaining the disallowance.

For example, the EITC has strict income limits and eligibility requirements based on filing status, number of dependents, and earned income. If a taxpayer claims the credit but exceeds the income threshold—$63,398 for married couples filing jointly in 2023—the IRS will deny the claim. Similarly, if a taxpayer claims the AOC for education expenses but has already used the credit for four tax years (the maximum allowed), the IRS will reject the request.

Taxpayers should verify their eligibility for any credits before claiming them. Reviewing IRS guidelines, using the Interactive Tax Assistant on the IRS website, or consulting a tax professional can help ensure compliance. If a credit is denied due to an error, taxpayers may need to provide additional documentation or file an appeal.

How This Notice Affects Tax Filings

Receiving IRS Letter 105C can impact a taxpayer’s financial records, particularly if the denied refund or credit was factored into their financial planning. When a claim is rejected, any expected funds will not be issued, which could affect budgeting decisions, debt payments, or planned investments. If the denial results in a tax liability rather than a refund, the taxpayer may need to adjust their financial strategy to cover the owed amount.

The notice may also require adjustments to prior tax returns. If the IRS denies a refund due to an incorrect filing, the taxpayer might need to submit an amended return using Form 1040-X. This process can take up to 20 weeks for the IRS to process, delaying any potential corrections. Additionally, if the denial relates to a tax credit, the taxpayer may need to reassess their eligibility for similar credits in future filings to avoid repeated issues.

A denied refund could also lead to increased scrutiny in subsequent filings. The IRS tracks prior disallowances, and repeated errors may result in additional review or auditing. Taxpayers who have had credits disallowed may be required to file Form 8862 in future years to prove eligibility before claiming the credit again. This added layer of verification can complicate future tax filings, requiring more documentation and potentially delaying refunds.

Steps to Address the Letter 105C

Carefully reviewing IRS Letter 105C is the first step in determining the appropriate response. The notice specifies the reason for the denial, the tax year involved, and any applicable tax code references. Understanding the IRS’s reasoning is necessary before deciding whether to challenge the determination or accept it.

If disputing the decision, the taxpayer should draft a formal written response to the IRS explaining why they believe the refund or credit should be allowed. This response should be sent to the address provided in the letter and must include supporting evidence, such as payment records, corrected tax forms, or legal references that justify the claim. The IRS typically allows 30 to 60 days to appeal the decision. Filing a formal appeal with the IRS Office of Appeals may also be an option if the initial response does not resolve the issue.

If the denial is upheld, taxpayers may have the option to escalate the dispute to the U.S. Tax Court. Claims involving amounts under $50,000 may qualify for the Small Tax Case procedure, which offers a more streamlined process with fewer formal legal requirements. If the claim exceeds this threshold, a full trial proceeding may be necessary, requiring legal representation and a more extensive evidentiary process.

Documentation to Have on Hand

Gathering the right documents is necessary when responding to IRS Letter 105C. The specific paperwork needed depends on the reason for the denial, but having a well-organized set of records can improve the chances of a successful appeal.

Taxpayers should first obtain a copy of the original tax return and any amended returns filed for the year in question. Comparing these documents with the IRS’s explanation in Letter 105C can help identify discrepancies. If the issue involves an alleged overpayment, bank statements, canceled checks, or IRS account transcripts can serve as proof of payment. Taxpayers can request a transcript of their tax account through the IRS’s online portal or by submitting Form 4506-T.

For denials related to tax credits, supporting documentation must demonstrate eligibility. If the Earned Income Tax Credit was disallowed, taxpayers may need to provide proof of residency for qualifying dependents, such as school records or medical statements. If a business-related deduction was rejected, receipts, invoices, and mileage logs should be included. Keeping copies of all correspondence and submissions is also advisable in case further clarification is needed.