When the IRS Says Your Refund Is Under Review: A Comprehensive Guide

Filing taxes can be a daunting task, and receiving a notice from the IRS that your refund is under review can be even more stressful. Understanding why returns are flagged and what the review process entails can help alleviate anxiety and prepare you for potential outcomes. This comprehensive guide will delve into the reasons behind IRS reviews, the steps involved, and the possible consequences.

Reasons for IRS Review

The IRS employs a computerized scoring system called the Discriminant Function System (DIF) to assess the likelihood of errors or discrepancies in tax returns. Returns with high DIF scores are more likely to be selected for review. Factors that can trigger a high score include:

  • Significant changes in reported income compared to previous years
  • Excessive deductions for business expenses
  • Omission of 1099 forms

Additionally, the IRS randomly selects a small percentage of returns for review to compare against a sample of “normal” returns.

IRS Review Process

If your return is flagged for review, you will receive a CP05 Notice. This notice indicates that the IRS is verifying specific information on your return, such as:

  • Income
  • Tax withholding
  • Tax credits claimed
  • Withholding on Social Security benefits
  • Schedule C income
  • Claims for household help

During the review, the IRS will attempt to verify the information that triggered the flag. You are not required to take any action at this stage. However, if you are expecting a refund, it will be delayed until the review is complete. If you owe taxes, you must still pay by the tax filing deadline to avoid penalties.

Duration of Review

The duration of the review process varies depending on the complexity of the information being verified. If you do not hear from the IRS within 45 days of the initial notice, you can follow up to inquire about the status of your refund.

Potential Outcomes of Review

There are several possible outcomes of an IRS review:

  • No Changes: The IRS verifies the accuracy of your information and processes your refund.
  • Additional Taxes Owed: The IRS determines that you owe more taxes. If the amount is significant, you may need to apply for an installment agreement to avoid penalties and interest.
  • Full-Scale Audit: The initial review may lead to a full-scale audit, where the IRS examines all aspects of your return to ensure proper reporting of income and payment of taxes.

Tips for Tax Planning

To minimize the chances of your return being flagged for review, consider the following tips:

  • Accuracy: Ensure that all information on your return is accurate and complete.
  • Documentation: Keep all supporting documents, such as receipts and income statements, organized for easy reference.
  • Professional Help: If you have a complex tax situation, consider consulting with a tax accountant or financial advisor for guidance.

Receiving a notice that your refund is under review can be unsettling, but it is important to remain calm and understand the process. By being prepared and following the tips outlined above, you can navigate the review process smoothly and minimize any potential consequences.

IRS Tax Refund Update – Delays and Smaller Refunds


How long can the IRS process your refund for review?

If the IRS is reviewing your return, it may have questions about your wages and withholding, or credits or expenses shown on your tax return. The review process could take anywhere from 45 to 180 days, depending on the number and types of issues the IRS is reviewing.

What does it mean when the IRS holds your refund for review?

The IRS is holding your refund until we receive the additional information we requested from you to determine if the income is correct before we can release your refund.

Why is my tax return under review?

How Tax Returns Are Selected for Review. The most common reason for the IRS to review a tax return is something called the Discriminant Function System (or DIF) score. The IRS uses a computerized scoring model that evaluates your return and gives it a score based on the likelihood that it will need to be changed.

How long does refund review take?

(updated December 22, 2023) We issue most refunds in less than 21 calendar days. However, if you mailed your return and expect a refund, it could take four weeks or more to process your return.

How does the IRS review a tax return?

How Tax Returns Are Selected for Review The most common reason for the IRS to review a tax return is something called the Discriminant Function System (or DIF) score. The IRS uses a computerized scoring model that evaluates your return and gives it a score based on the likelihood that it will need to be changed.

What happens after IRS review?

After the IRS finishes its review, you may be required to verify tax credits claimed, income tax withholding or business expenses before your refund will be released or applied as an overpayment to next year’s estimated tax. How did I get here?

What does a refund review mean?

We’re here to help you break down what a refund review means and what you should do about it. When the IRS officially places your return under review, you’ll receive a CP05 notice. This will immediately put your refund processing on delay until the review is complete.

Why is the IRS holding my tax refund?

There are many reasons why the IRS may be holding your refund. You have unfiled or missing tax returns for prior tax years. The check was held or returned due to a problem with the name or address. You elected to apply the refund toward your estimated tax liability for next year. The IRS is reviewing your tax return.

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