Why Do I Have to Verify My Tax Return With the IRS?
Understand the reasons behind IRS tax return verification, from identity checks to past discrepancies, ensuring accurate and secure tax processing.
Verifying your tax return with the IRS is an essential step in maintaining the integrity of the tax system. This process ensures refunds are issued correctly and to the rightful recipients, minimizing fraud and errors.
Identity Confirmation Requirements
The IRS has strict identity confirmation measures to protect taxpayers’ information and prevent unauthorized access. In an era of increasing identity theft and tax fraud, taxpayers may need to verify their identity through methods such as providing a government-issued ID, answering security questions, or using the IRS online identity verification tool. These steps ensure the individual filing the return is the legitimate taxpayer, safeguarding both the taxpayer and the tax system.
Under regulations like the Internal Revenue Code Section 6109, which mandates taxpayer identification numbers, the IRS may request additional documentation, such as a Social Security card or recent utility bill, to confirm identity. These requirements align with federal guidelines and the Taxpayer First Act, which emphasizes the protection of taxpayer data.
Taxpayers may receive a Letter 5071C or 4883C from the IRS if potential discrepancies or unusual activity are detected. Responding promptly to such requests is essential to avoid delays in processing returns and issuing refunds. Verification can be completed through the IRS’s secure online portal or by calling the number provided in the letter.
Inconsistencies in Reported Details
The IRS identifies discrepancies in reported details to ensure accuracy and compliance. These inconsistencies may include mismatched income figures, incorrect filing statuses, or discrepancies in deductions. For example, if a taxpayer reports income that differs from amounts on W-2s or 1099s, the IRS may flag the return. Third-party reporting is used to cross-verify taxpayer-submitted information.
Sophisticated algorithms and data analytics detect mismatches, such as when a dependent is claimed on multiple returns or when charitable contributions lack documentation. The IRS’s Automated Underreporter (AUR) program compares taxpayer returns to information returns to identify variances.
In response to inconsistencies, the IRS may issue a CP2000 notice, outlining discrepancies and proposing adjustments. Taxpayers must either accept the changes or provide documentation to support their original claims. Reviewing records carefully and responding within the given timeframe is critical to avoid penalties and interest.
Claimed Credits or Deductions
Tax credits and deductions reduce tax liability but come with strict rules. For example, the Earned Income Tax Credit (EITC) requires meeting specific income thresholds and filing criteria, while the Child and Dependent Care Credit requires detailed expense documentation.
The IRS monitors excessive or erroneous claims of credits and deductions using tools like the Discriminant Information Function (DIF) score, which evaluates the likelihood of errors. For instance, claiming unusually high medical expenses without proof or the Home Office Deduction without evidence of a designated workspace may trigger an audit. Detailed records, such as receipts and invoices, are necessary to substantiate these claims.
Incorrectly claiming credits or deductions can result in penalties. Under the IRS’s accuracy-related penalty, taxpayers may face a 20% penalty on underpaid taxes if found negligent. Additionally, the Protecting Americans from Tax Hikes (PATH) Act of 2015 requires the IRS to hold refunds involving the EITC or Additional Child Tax Credit until February 15 to allow for verification. Accuracy and compliance are vital when claiming tax benefits.
Past Filing Discrepancies
The IRS may revisit past returns to ensure consistency and accuracy across multiple tax years. Discrepancies in prior filings, such as incorrect carryover amounts for capital or net operating losses, can prompt additional scrutiny. These carryovers must comply with tax regulations, including Internal Revenue Code Section 1212, which governs capital losses.
Amendments to previous returns also draw attention. Filing Form 1040-X requires detailed explanations and supporting documentation for changes. The IRS cross-references amendments with original filings to ensure consistency. For instance, if a taxpayer amends a return to claim an unreported deduction, the IRS will assess its validity against prior returns and records.
Random Selection for Verification
Not all tax return verifications result from discrepancies. The IRS also conducts random selection as part of its broader compliance efforts. Statistical models and algorithms identify returns for closer examination, even without immediate red flags. This ensures the tax system remains fair and unbiased.
Taxpayers selected randomly may need to provide additional documentation, such as bank statements or pay stubs, to confirm reported amounts. While inconvenient, this process does not imply wrongdoing. Random selection helps the IRS evaluate compliance strategies and identify trends in taxpayer behavior. For example, if a specific credit or deduction is frequently misunderstood, the IRS can use this data to improve taxpayer education or adjust guidelines.
In some cases, random selection overlaps with other factors, such as involvement in higher-risk industries. Self-employed individuals or those with significant cash-based income may face additional scrutiny due to the challenges of verifying such income. Maintaining accurate records and adhering to tax regulations is essential to ensure a smooth verification process.