In 2012, the IRS identified 2.7 million math errors made by taxpayers on their 2011 tax returns. Although the number of errors tax filers are making is steadily declining, you still stand a pretty good chance of receiving an IRS notice informing you that your refund is being corrected. The important thing to remember is that the notice is probably indicative of a minor problem that can usually be corrected with minimal effort on your part.
Normally, a change to your refund indicates you made a mistake on your return. If you are owed a refund and the IRS catches a mistake, the IRS will change your refund to reflect the correction. Once the change is made, you will be notified by the IRS.
Another reason the IRS might correct your refund is that you forgot to include tax you’d already paid. For example, independent contractors and self-employed people are responsible for mailing estimated taxes to the IRS since they have no wages from which federal taxes can be deducted. If you paid estimated taxes earlier in the tax year and failed to account for it on your annual return, the IRS will deduct the estimated tax payments from your federal tax liability. By the same token, if you claim an estimated tax payment on your return that was never made, the IRS will correct your refund to reflect that as well.
Understanding Your Notice
If the IRS corrects your refund, you will receive a notice advising you of the reason for the change. At the very top of the notice you should see the letters CP followed by a number. This lets you know the type of notice that you’re receiving. For example, a CP 102 indicates your refund was changed due to a math error and you now owe tax. A CP 42 indicates that the amount of your refund has changed to reflect an offset to pay your spouse’s past due tax debt. The body of the notice will explain the changes that were made to your return and how those changes impact your refund. Sometimes the correction the IRS makes to your refund concerns unpaid federal debts, such as student loan debts. For a complete list of the notice numbers and what they mean, see Resources.
If you receive a notice in the mail alerting you that the IRS has made a correction to your refund, the first thing you should do is compare a copy of your tax return with the information listed on the IRS notice. If you notice a mistake on your return, or in your records, then you don’t have to do anything. The IRS will make the change and send you the corrected refund. If you disagree with the IRS notice, call the IRS right away at 800-829-1040. It could be as simple as the IRS misapplying one of your estimated tax payments to another taxpayer’s account, in which case the problem can be resolved in minutes.
Denise Caldwell is a finance writer who has been writing on taxation and finance since 2006. Her articles appear regularly on websites such as Gomestic.com and MoneyNing.com. She has taken what she learned while working at the IRS to provide readers with helpful tax and finance tips. Caldwell received a Bachelor of Arts in political science from Howard University.