What Is IRS Notice CP87A and How Does It Affect Your Taxes?

IRS Notice CP87A is a communication from the Internal Revenue Service that can impact taxpayers when there are discrepancies in claiming dependents on a tax return. These discrepancies can affect deductions and credits, making it crucial to understand and address such notices to maintain accurate tax records and avoid complications with the IRS.

Common Reasons for Receiving the Notice

IRS Notice CP87A typically arises from issues related to dependent claims on tax returns. A common cause is when multiple taxpayers claim the same dependent, often in cases involving divorced or separated parents. The IRS applies “tie-breaker rules” to determine which parent is eligible to claim the dependent, considering factors such as the number of nights the child spent with each parent and the adjusted gross income of the parties involved.

Errors related to Social Security Numbers (SSNs) can also trigger this notice. Typographical mistakes or outdated information may cause discrepancies since the IRS cross-references SSNs with its database. Taxpayers should ensure all SSNs are accurate and match the dependent’s Social Security card.

In some cases, taxpayers may mistakenly claim a dependent who does not meet the IRS’s definition of a qualifying child or relative. The IRS has strict criteria for dependents, including tests for age, residency, and financial support, which must be satisfied to qualify for dependent-related tax benefits.

Determining Dependent Eligibility

To avoid issues like IRS Notice CP87A, taxpayers must understand the eligibility criteria for claiming dependents. The IRS has clear guidelines rooted in the Internal Revenue Code for determining who qualifies as a dependent. These rules are critical for claiming tax benefits like the Child Tax Credit or Earned Income Tax Credit.

A dependent must satisfy tests for relationship, age, residency, and support. For example, the relationship test requires the dependent to be a child, sibling, or another qualifying relative, such as a biological child, stepchild, or foster child. The age test generally requires dependents to be under 19, or under 24 if a full-time student, at the end of the tax year. The residency test mandates that the dependent must have lived with the taxpayer for more than half the year, while the support test requires that the dependent did not provide more than half of their own financial support.

For qualifying relatives, the gross income test also applies. For the 2024 tax year, a qualifying relative’s gross income must be less than $4,700. Taxpayers must also provide more than half of the dependent’s financial support, which includes expenses for food, shelter, clothing, medical care, and education. These thresholds are updated annually for inflation, so taxpayers should verify the current year’s limits.

Responding if You Disagree

If you believe IRS Notice CP87A was issued in error, address it promptly. Begin by reviewing the notice to understand the IRS’s concerns. Cross-check your tax return against the notice to identify inaccuracies.

Gather documentation to support your claim, such as school records, medical bills, or other proof of the dependent’s residency or financial support. For example, school enrollment records showing the dependent’s address or financial statements illustrating your contributions can be critical.

Contact the IRS using the information on the notice to explain your position and provide supporting evidence. If the situation involves complex tax laws or significant sums, consulting a tax professional or attorney can be beneficial. They can guide you in preparing a response or, if necessary, represent you in discussions with the IRS.

Potential Tax Implications

Receiving IRS Notice CP87A can affect your tax situation, particularly if dependent-related claims are disallowed. Losing eligibility for benefits like the Child Tax Credit, worth up to $2,000 per qualifying child, or the Earned Income Tax Credit, which can amount to thousands of dollars, may increase your tax liability.

Additionally, adjustments to your taxable income could result in penalties or interest for underpayment. These penalties can accumulate quickly, so resolving discrepancies promptly is essential. If you believe an error has been made, the IRS provides avenues for appeal and correction.

Consequences of Ignoring the Notice

Ignoring IRS Notice CP87A can lead to serious financial and legal consequences. The IRS may disallow dependent-related claims, recalculate your tax liability, and impose penalties or interest on unpaid amounts. This could result in owing additional taxes, with interest accruing from the original filing date.

Further inaction may escalate the situation. The IRS has the authority to initiate audits or enforce collection measures, such as garnishing wages or seizing assets, under the Internal Revenue Code. Unresolved issues could also delay future tax refunds, as the IRS may offset refunds to cover outstanding liabilities.

Repeated issues with dependent claims may lead to heightened scrutiny of your tax filings. In some cases, the IRS may impose a two-year ban on claiming certain credits, such as the Earned Income Tax Credit. Addressing the notice promptly helps resolve the current issue and prevents complications for future tax years.

Where to Get Assistance

Dealing with IRS Notice CP87A can be challenging, but resources are available to help. The IRS website offers guidance, including publications like IRS Publication 501, which explains dependent eligibility rules. The notice itself often contains instructions and contact information for reaching out to the IRS.

For personalized assistance, consult a tax professional such as a Certified Public Accountant (CPA), Enrolled Agent (EA), or tax attorney. These experts can analyze your situation, interpret relevant tax laws, and communicate with the IRS on your behalf. They can also help prepare a formal response or represent you in an audit.

Taxpayers with limited means can seek help through Low Income Taxpayer Clinics (LITCs), which provide free or low-cost representation. The Taxpayer Advocate Service (TAS), an independent organization within the IRS, can also assist taxpayers facing significant hardships or delays. Reaching out to these resources can help ensure the notice is resolved effectively, reducing stress and safeguarding your tax filings.