The IRS sends a CP12 notice when it believes you made a mistake on your tax return but are still owed a refund. This might mean a larger refund, a smaller refund, or an amount due turning into a refund.
Here is an example of this notice.
When does the IRS send a CP12 Notice?
The IRS sends a CP12 notice when it discovers math or calculation errors that change the amount of tax that you owe. Since you’re still owed a refund, the CP12 notice is sometimes called an IRS adjusted refund letter or overpayment letter.
The cause of the changes might be errors in adding or subtracting, entering information in the wrong line, skipping a step, or checking the wrong box.
The IRS generally won’t send a CP12 notice because you missed a deduction or credit or because it believes you don’t qualify for one. This is not a math error. The IRS would usually need to request additional information before making an eligibility adjustment. That would fall under a different notice or letter.
Is the IRS really trying to give me money?
The IRS’s job is to make sure your taxes are right not to take as much money as possible. If the IRS determines that you overpaid, you will receive a refund check or direct deposit.
Will I get interest?
In some cases, you may receive interest if you overpaid your taxes and the IRS has to refund you. This is usually when the IRS didn’t process your refund in a timely manner. The IRS does not pay interest on tax refunds issued within the normal processing times after you file your tax return.
If you receive interest, you will see a note on your check labeled “INT Amount.” The interest may be paid separately from your refund.
IRS interest is still taxable income. If they paid you $10 or more, you should receive a 1099-INT. All interest must be reported on Schedule B.
Why is my refund check smaller now?
In some cases, your CP12 may show a refund smaller than you expected. In that situation, the IRS is saying that you made a mistake, your tax liability is actually higher, but you still paid too much.
For example, you may have calculated that you’re owed a $1,000 refund. Before the IRS refunded you, it recalculated it to $500. You get the CP12 because the IRS still owes you $500.
The good news is that because the IRS caught the potential error before it refunded you, it generally won’t assess a penalty and interest.
If the IRS reduces your refund and you disagree, you have the right to appeal. The IRS doesn’t always get it right especially in complex tax situations. Keep in mind that if you just accept the smaller refund without questioning it, you may lose the right to claim the rest of your refund especially if the deadline to amend your tax return has passed. You generally need to contact the IRS within 60 days.
Should I always accept a larger refund?
There are two situations where you may not want to accept a larger refund without carefully going over your tax records.
Are you unsure that there are no other errors on your return?
If one mistake you made when filing your taxes led to you overpaying, you could have a second mistake that cost you more as well. Accepting the CP12 only gets you the refund for the first mistake. You may also be able to file an amended return to get a refund for the second mistake.
Do you know the IRS is wrong?
For example, you might have filled out a form incorrectly and the IRS tried to fix it by giving you a refund. Instead, you know that if the form was filled out correctly, you would have actually owed even more. If you accept the larger refund and the IRS later finds this problem in an audit of prior tax years, you’ll owe interest and penalties on the tax debt.
How to Verify a CP12 Notice
Your CP12 will be about something you included on your tax return. If it’s talking about deductions or credits you know nothing about, it may be a scam. On the other hand, if you receive a letter telling you you missed the Child Tax Credit and you have a child, you want to look into it.
Your notice will look like this example on the IRS website. You can also go to irs.gov and look up the phone number to call. Never call the phone number on a notice you aren’t sure about, because if it’s a fake, the number will go to the scammers who may be trying to steal your Social Security Number.
You can also verify your refund amount by going to the IRS website and reviewing your account transcript.
Where to Respond
If you choose to handle this on your own instead of hiring a tax professional, the IRS letter will tell you where to mail your response. It will typically be one of these addresses depending on which IRS office is handling your income tax return. These addresses may change, so always use the address on your letter.
- 3651 S. Interregional HWY 35, Stop 6121, Austin, TX 78741
- 201 W. Rivercenter Blvd. Stop 361, Covington, KY 41011
- 5045 E. Butler Ave., Stop 36102, Covington, KY 41011
- 333 Pershing Rd. Stop 6120 N-1, Kansas City, MO 64108
- 1973 N. Rulon White Blvd. Stop 6121, Ogden, UT 84404
The IRS letter may also provide a number where you can fax your tax documents instead. It will typically be one of these numbers. These numbers may change, so always use the number on your letter or on the IRS website.
For tax years 2020 and 2021, the IRS is still having very long response times due to the backlog of work during the COVID-19 pandemic. This is causing major delays in refunds especially regarding the Recovery Rebate Credit. Unfortunately, there is not much you can do except write a letter to your Congressman saying the IRS needs to reform its processes.