Why Would the IRS Be Reviewing My Refund?

Receiving a notice from the Internal Revenue Service (IRS) can be a nerve-wracking experience, especially if it pertains to a review of your tax return. Understanding the reasons behind an IRS review can help alleviate anxiety and prepare you for the process. This comprehensive guide will delve into the various factors that may trigger an IRS review, the implications of such a review, and the potential outcomes.

Reasons for an IRS Tax Return Review

The IRS employs a sophisticated system to identify tax returns that warrant further examination. This system, known as the Discriminant Function System (DIF), assigns a score to each return based on its likelihood of containing errors or discrepancies. Returns with higher DIF scores are more likely to be selected for review.

Several factors can contribute to a high DIF score, including:

  • Significant changes in income: A substantial increase or decrease in reported income compared to previous years can raise red flags for the IRS.
  • Excessive business expense deductions: Claiming unusually high deductions for business expenses may trigger an IRS review.
  • Missing or incomplete 1099 forms: Failing to report all income sources, such as those reported on 1099 forms, can lead to a review.
  • Random selection: The IRS randomly selects a small percentage of tax returns for review as part of its quality control measures.

What an IRS Review Involves

If your tax return is selected for review, you will receive a notice from the IRS, typically a CP05 Notice. This notice will inform you that your return is under review and specify the areas being examined. The IRS will attempt to verify the information on your return by comparing it to records from employers, banks, and other sources.

During the review process, the IRS may request additional documentation or information to support the claims made on your return. It is crucial to respond promptly and provide the requested materials to avoid delays or penalties.

Potential Outcomes of an IRS Tax Review

The outcome of an IRS tax return review can vary depending on the findings. The best-case scenario is that the IRS verifies the accuracy of your return and processes your refund. However, there are other possible outcomes:

  • Additional taxes owed: If the IRS determines that you underpaid your taxes, you may be required to pay the difference, plus interest and penalties.
  • Reduced refund: If the IRS finds that you overstated your refund, the amount of your refund may be reduced.
  • Audit: In some cases, an IRS review may lead to a full-scale audit, where the IRS will thoroughly examine all aspects of your tax return.

Tips for Dealing with an IRS Tax Return Review

Receiving an IRS review notice can be stressful, but it is important to remain calm and take the following steps:

  • Gather your documentation: Organize all relevant tax documents, including income statements, receipts, and any correspondence with the IRS.
  • Respond promptly: Reply to the IRS notice within the specified timeframe and provide the requested information.
  • Consider professional help: If you are uncomfortable dealing with the IRS on your own, consider seeking assistance from a tax professional, such as a certified public accountant (CPA) or enrolled agent (EA).

An IRS tax return review is not necessarily a cause for alarm. By understanding the reasons for a review, the process involved, and the potential outcomes, you can better prepare yourself and minimize any potential negative consequences. If you receive a review notice, it is crucial to respond promptly, provide accurate information, and seek professional help if necessary.

IRS Tax Refund Update – Delays and Smaller Refunds


How long will my refund be under review?

The IRS issues more than 9 out of 10 refunds in less than 21 days. However, it’s possible your tax return may require additional review and take longer.

What does it mean when IRS is reviewing your taxes?

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.

How long can the IRS legally hold your refund for review?

That’s because the IRS can quickly check most of returns and agree with the refund amount you asked for. But, in case the IRS needs to take a closer look at your return, the review process can take longer. If they ask you for more information and you give it to them, they try to do everything within 60 days.

Does the IRS actually review every tax return?

The Internal Revenue Service uses a combination of automated and human processes when selecting which tax returns to audit. All tax returns are compared with statistical norms, and those with anomalies undergo three layers of review by personnel.

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.

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.

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 if I haven’t received my tax refund?

If, after 60 days from the date of this notice, you have not received your refund or heard from the IRS, contact the IRS at the toll-free number listed at the top right corner of your notice. If the entries reported on your return cannot be verified, you may be asked to submit documents verifying your wages and withholding that were reported.

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