What Should You Do If You Receive an IRS CP75 Notice?

Receiving a CP75 notice from the IRS can be concerning, as it means your tax return is under review. This notice typically relates to refundable credits, such as the Earned Income Tax Credit (EITC) or Child Tax Credit (CTC), and requires additional documentation before your refund is processed. While this may cause a delay, responding correctly can help resolve the issue efficiently.

Reason for CP75

The IRS issues a CP75 notice when it needs to verify specific claims on your tax return. This often happens when deductions or credits significantly impact the amount owed or refunded. The agency uses automated systems to flag returns for review, typically due to discrepancies between reported income, filing status, or dependents and information from third-party sources like employers or financial institutions.

A common reason for receiving this notice is a mismatch between the income you reported and what your employer or other entities submitted via Forms W-2 or 1099. If inconsistencies arise, the IRS may delay your refund until the issue is resolved. If your return includes dependents, the agency may need to confirm they meet residency and relationship requirements to prevent duplicate claims.

In some cases, the IRS selects returns for review based on statistical models designed to detect potential errors or fraud. These models analyze tax filings and compare them to historical data, flagging returns that deviate from expected norms.

Verification Steps

Once you receive a CP75 notice, review the letter carefully to understand what the IRS is questioning. The notice will specify which part of your return is under review and provide a deadline for your response. Missing this deadline could result in the IRS disallowing the credit or deduction, which may reduce your refund or create an additional tax liability.

Gather records that support the claims on your tax return. The IRS may request documents verifying income sources, household composition, or other tax-related details. If a tax preparer completed your return, notify them about the notice, as they may have copies of the necessary records or be able to assist in responding.

Submitting your response promptly is important, but accuracy is just as necessary. The IRS provides instructions on where to send your documents, which may include a mailing address or fax number. If mailing, use certified mail with a return receipt as proof of submission. If faxing, keep a confirmation page in case follow-up is needed.

Required Documentation

The documents needed depend on the credits or deductions under review. If your CP75 notice pertains to the Earned Income Tax Credit (EITC), you may need to submit proof of earned income, such as pay stubs, a letter from your employer, or records of self-employment earnings, including invoices and bank statements. If you reported self-employment income, the IRS may request a complete Form 1099-NEC or a detailed profit and loss statement.

For taxpayers claiming dependents, verifying residency and relationship is often necessary. Acceptable documents include school records, medical records, or a signed statement from a landlord or social services agency confirming the dependent lived with you for more than half the year. If the dependent is not your biological child, additional proof like a court decree, adoption records, or a legal guardianship document may be required. These documents should be dated within the tax year in question.

If your CP75 notice involves the American Opportunity Tax Credit (AOTC) or another education-related credit, submitting a Form 1098-T from the educational institution, along with proof of tuition payments such as bank or credit card statements, is recommended. Simply receiving a 1098-T does not always satisfy the IRS, as eligibility also depends on out-of-pocket education expenses, which may require additional supporting documentation like receipts for textbooks or course materials.

Possible Tax Adjustments

If the IRS determines that your submitted documentation does not fully support the claims on your return, it may adjust your refund or tax liability. These adjustments can include the disallowance of a credit, recalculation of taxable income, or reassessment of filing status. Taxpayers who claimed the Earned Income Tax Credit (EITC) but fail to meet the substantiation requirements may see the credit reduced or removed entirely, leading to a lower refund or an outstanding balance.

Adjustments can also result in penalties or interest charges if the IRS finds that an error led to an underpayment of tax. Under Internal Revenue Code 6662, accuracy-related penalties of 20% may apply if the IRS determines that the deficiency resulted from negligence or a substantial understatement of income tax. Interest accrues on any unpaid balance from the original due date of the return, calculated under Internal Revenue Code 6601 at a rate tied to the federal short-term rate plus 3%.

In cases where a taxpayer repeatedly makes erroneous claims, the IRS may impose a ban on claiming certain credits for up to ten years under Internal Revenue Code 32(k). This penalty applies if the agency determines that a claim was due to reckless or intentional disregard of the rules. Taxpayers facing such a ban must take extra steps in future years to prove eligibility before credits can be applied to their returns.

Communication Channels

Effectively communicating with the IRS after receiving a CP75 notice can help prevent unnecessary delays. The notice will provide instructions on how to submit your documentation, but understanding the different methods available can help you choose the most efficient approach.

The IRS generally allows responses to CP75 notices to be sent via mail or fax. If mailing, using certified mail with a return receipt ensures proof of submission. Faxing can be a faster option, as it allows the IRS to process your response more quickly, but keeping a confirmation page is important in case follow-up is needed. In some cases, the IRS may allow online document submission through its secure portal, though this option is not always available for CP75 responses.

For taxpayers who need clarification or assistance, calling the IRS using the phone number listed on the notice can provide direct guidance. However, wait times can be long, especially during peak tax season. If the issue is complex, scheduling an appointment at a local Taxpayer Assistance Center (TAC) may be beneficial. Additionally, low-income taxpayers who need help responding can seek assistance from the Taxpayer Advocate Service (TAS) or a Low Income Taxpayer Clinic (LITC), both of which offer free or low-cost support.