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A CP75 notice means the IRS is auditing your Earned Income Tax Credit. The notice will state exactly what they’re auditing and what documentation to send.

View an example of this notice on the IRS website

Why does the IRS send a CP75 Notice?

This notice is only for audits of the Earned Income Tax Credit. As a widely available refundable credit, this is one of the most abused credits, and the IRS has a high audit rate for tax returns claiming it. The IRS routinely requests additional documentation from people who claim it.

Receiving this notice does not necessarily mean that you were not eligible to claim the credit. The IRS simply wants to see additional proof of your eligibility.

Who qualifies for the Earned Income Tax Credit?

To qualify for the Earned Income Credit, you must meet the following IRS requirements:

  • Have earned income (from wages, tips, self-employment, etc.) under $57,414 for 2021. This limit goes up each year with inflation.
  • Have investment income under $10,000 in 2021. Investment income is things like selling stocks or getting stock dividends. It does not include investments in your tax-advantaged retirement accounts.
  • Have a valid Social Security number by the due date of your 2021 return (including extensions)
  • Be a U.S. citizen or a resident alien all year
  • Not file Form 2555 (related to foreign earned income)
  • The amount you can claim varies based on your filing status and number of dependents

Special rules may apply if you’re a military member, clergy member, or if you or someone in your family is disabled. You can use the  IRS Qualification Assistant to see if you qualify for the credit.

Are my tax returns getting audited by the IRS?

Many people would consider a CP75 to be an audit notice. In many cases, the IRS won’t go beyond what they asked about in the letter. However, it is possible that if they notice an issue with something else that they could expand the audit.

How should I respond?

The CP75 notice will tell you what information the IRS needs. You can use the included response form. If you don’t have the original documents they asked for, talk to a tax professional about alternative ways to prove your eligibility.

The IRS often uses the following address for CP75 responses: Examination Operations, Stop 22B, PO Box 47-421, Doralville, GA 30362-0421. However, you should mail your response form to the address listed on your notice. If you aren’t sure the notice is real because it has a different address, call the number on the IRS website, not on your notice.

What happens if I don’t return the response form?

The audit process can be a tedious chore, but you can’t ignore it. If you don’t respond to the notice, the IRS will generally disallow the credit. If the IRS disallows the credit, you will likely owe additional tax plus interest and penalties.

In some cases, if you don’t respond or the IRS disallows your credit, you may get a¬†CP79A Notice¬†banning you from claiming the Earned Income Tax Credit for two years.

What should I do if I realize I wasn’t eligible for the Earned Income Credit?

If you realize you should not have claimed the Earned Income Tax Credit, you should respond to your CP75 notice explaining that you made a mistake and why. This may reduce your chances of being banned from taking the EITC in the future. It will also ensure that you can receive your bill and pay your balance sooner and reduce the interest and penalties that you have to pay.

What happens if I wasn’t eligible for the credit?

If you weren’t eligible for the credit, you will owe additional tax. If the IRS held your tax refund, it will be reduced by the amount of the credit. If you didn’t have your tax refund on hold or your refund was less than your credit, you will need to pay the balance due. Interest and penalties apply to the unpaid balance starting from the original due date of your tax return.

In some cases, you can be banned from claiming the credit for two years. The IRS can disqualify you if they found you recklessly or intentionally broke the rules for claiming it. However, this can be open to interpretation. Since the credit can be worth several thousand dollars, you may want to contact an EA or CPA to help you. If this is your only tax problem, it’s usually not big enough for an attorney, but that’s also an option.

Will the IRS always hold my tax refund?

Whether the IRS holds your tax refund can depend on when your tax return got flagged. There are some things that they check before issuing your refund and will hold your refund for. There are other things that they check later or that won’t get flagged until they receive additional information from another source. In that case, you might get your CP75 notice after you get your refund.

If the IRS holds your refund, they usually hold your entire refund. If you filed for a $2,000 refund with only $500 coming from the Earned Income Tax Credit, you’ll get $0 until you resolve the issue with your EITC. You won’t get $1,500 now while the IRS decides on the $500 EITC.

Conclusion

Many people falsely claim the Earned Income Tax Credit, so the IRS audits it a lot. If your credit gets disallowed because you can’t prove you were eligible, you could owe back taxes plus interest and penalties. You may also be banned from claiming the credit in the future. Since you have a lot of money on the line, it’s a good idea to get help from a tax professional.

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