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Notice CP12 IRS Letter

Notice CP12

Austria
Simon Berger @8moments

Did you receive a notice CP12 from the IRS? If so, it's most likely due to an error or mistake on your latest tax return. Consequently, you are now either due a tax refund, your original refund amount has changed, or you now might owe income taxes.

Here are two sample CP12 Notices taxpayers received as a result of incorrect Recovery Rebate Credits (stimulus payments during 2020) reported on their 2020 Tax Returns. In both of these cases, the IRS stated that the taxpayers had reported incorrect stimulus payments or Recovery Rebate Credit amounts on their respective tax returns. As a result, the tax over-payment amount is now smaller than the taxpayer expected or noticed on their tax return. In other words, many taxpayers saw their refund shrink or even turn from a refund into owing taxes. For example, if their refund was $500, but the IRS adjusted the second stimulus of $600 they claimed, this would have resulted in a total tax liability of $100.

Changes to Your Refund, Taxes Owed

Notice CP12 will detail a change in your tax liability as adjusted by the IRS - not by eFile.com or any other tax preparation platform. For tax returns filed or e-filed in 2020, many taxpayers received this notice explaining a reduction of their refund due to the calculation of the Recovery Rebate Credit. Notice CP12 might list these reasons why your tax return results changed:

    • IRS: "The Social Security number of one or more individuals claimed as qualifying dependent(s) was missing or incomplete."
      • eFile.com response: This is not possible on an e-Filed tax return as a SSN has to be complete or can't be missing for a claimed dependent. This could only be the case on a paper based tax return.
    • IRS: "The last name of one more individuals claimed as a qualifying dependent does not match our (IRS) records."
      • eFile.com response: This is very unlikely with an e-Filed tax return as mis-matching names results in tax return rejections by the IRS unless the tax return gets corrected and re-efiled with the dependent's correct last name. On a paper based return, this could be more likely.
    • IRS: "One or more individuals claimed as qualifying dependents exceeds the age limit."
      • eFile.com response: This is possible; check here for stimulus payment related age limitations. If a taxpayer attempted to claim a stimulus credit for a dependent that was above the age threshold, then the IRS would have adjusted this upon receiving the return.
    • IRS: "The amount (Recovery Rebate Credit) was computed incorrectly (on the respective tax return)."
      • eFile.com response: This is the most common reason. Recovery Rebate Credit calculations are based on the data entered by the taxpayer. Calculation results have been tested, thus incorrect Recovery Rebate Credit amounts are not the result of incorrect calculations. For example, if a taxpayer claimed $0 (zero dollars) as Stimulus Payment 1, then eFile.com will have added the Recovery Rebate Credit amount of $1,200 per qualifying taxpayer to the Form 1040 based on that entry and other qualification parameters. This is shown on the Recovery Rebate Credit Worksheet. Or, a taxpayer might have claimed a dependent on a previous tax return - a tax return that was used to calculate a stimulus payment. Subsequently, a taxpayer either no longer claimed this dependent on a tax return or the dependent might no longer be eligible. This could also result in notice CP12.

Respond to Notice CP12

IRS Notice CP12 may require some attention, especially if your refund was changed into taxes owed. Please take these steps regarding Notice CP12:

    1. Read the content of the notice CP12 carefully so you know the purpose of the IRS tax return correction or adjustment.
    2. If the notice is about a Recovery Rebate Credit adjustment that resulted in a lower than expected tax refund or a higher than expected tax liability, go back and gather the exact payments you received for Stimulus 1, Stimulus 2, and/or Stimulus 3 from IRS Letters 1444, 1444B, and 1444C. Stimulus 3 is not part of the 2020 Return, but may be helpful in understanding the amounts you received.
    3. Then, sign in to your eFile.com tax return and double check if you entered the exact amounts for Stimulus 1 and 2 on your 2020 Tax Return and the exact amount for Stimulus 3 on your 2021 Tax Return on the Recovery Rebate Credit page:
      • On the left side menu, click on Federal Taxes -> Review. On the right side page link, click I'd like to see the forms I've filled out or search for a form. Scroll to the Recovery Rebate Credit section and double check the amounts you entered there. If they do not match what the IRS actually paid you in stimulus payments, the IRS Notice CP12 might be the result of that.
      • Important: The eFile app will calculate your Recovery Rebate Credit based on what you did or did not enter. If you report that you did not receive Stimulus 1, then eFile will calculate this on your return. If you did receive Stimulus 1, then the IRS will remove this credit from your refund.
    4. If you think one or more stimulus payment amounts you received are incorrect, verify your eligibility and payment amounts via these free eFile.com tools:
      • Stimulus 1 Calculator (Tax Return 2020 Recovery Rebate Credit if no or incorrect stimulus payment received).
      • Stimulus 2 Calculator (Tax Return 2020 Recovery Rebate Credit if no or incorrect stimulus payment received).
      • Stimulus 3 Calculator (Tax Return 2021 Recovery Rebate Credit if no or incorrect stimulus payment received).
    5. Review your appeal rights and steps to take to prepare a protest if you disagree with Notice CP12.
    6. If you think the IRS made a mistake by adjusting your tax return based on Notice CP12, either contact the IRS via the contact information listed on Notice CP12 or contact an eFile.com Taxpert® with questions you might have about a particular tax return you prepared and e-Filed via eFile.com.

Understand, review, and determine the steps to take if you receive IRS Notice CP12. Refer to your latest tax return copy in your eFile.com account under My Account or obtain a copy of your tax return to see the areas the IRS has adjusted. The notice will have a deadline to pay your new tax balance, if applicable, before tax penalties are applied.

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